Iron ore surges amid strong Asia demand

The price of iron ore, the commodity used in steelmaking, hit a seven-month peak on Friday, further increasing inflationary pressures in emerging markets, which depend on cheap supplies of steel for their industrialisation and urbanisation.

“Inflationary pressure appears to be a building theme going into 2011,” said Daniel Brebner, metal analyst at Deutsche Bank.The surge comes amid low supplies from India, the world’s third largest producer after Australia and Brazil, and strong demand in Asia, particularly Japan, South Korea and Taiwan. Chinese consumption remains robust too. The cost of iron ore is critical to the global economy and inflationary trends as it filters into steel prices and into the cost of everyday goods.

Iron ore is also important for the profitability of the mining and steelmaking sectors, two of the world’s largest heavy industries.

Iron ore supplies are running low after an Indian court upheld Karnataka state’s decision this year to ban iron ore exports. The state, which accounts for about a quarter of India’s annual exports of more than 100m tonnes, prohibited the sale of the commodity amid a clampdown on illegal mining.

The benchmark Australian iron ore – 62 per cent iron content – rose on Friday in Singapore to $169.10 a tonne, the highest level since May. The cost of the commodity gained 2 per cent over the week. Iron ore prices hit a two-year high of $184 a tonne in April. Analysts believe prices could surge to more than the psychologically important $200 a tonne early next year.