"As margins are very high currently, mills have an incentive to build steel inventories," said Zhao Chaoyue, an analyst at China Merchants Futures in Shenzhen. Photo: Getty Images

Iron ore keeps on delighting the bulls. The raw material that was battered for the past three years has vaulted back above $US60 a metric ton after data from China added to signs that Asia's top economy may be on the mend and local mills' expanding margins spurred increased demand.

Ore with 62 per cent content delivered to Qingdao in China rose 2.1 per cent to $US60.48 a dry ton on Wednesday, the highest since March 8, according to Metal Bulletin. Prices have gained for three days, taking the advance this year to 39 per cent. That's a turnaround from 2015, when the benchmark plummeted 39 per cent on a global glut and weakening steel demand in China.

The raw material has staged a surprise rally in 2016 after policy makers signalled they're prepared to support growth, mills boosted purchases even as port stockpiles climbed, and steel prices advanced. Data on Wednesday showed China's total exports jumped the most in a year, signalling that the second-biggest economy may be stabilising.

Miners' shares have surged. Vale, the world's largest iron-ore producer, climbed as much as 8.4 per cent in Sao Paulo to its highest intraday since October. In London on Wednesday, BHP Billiton advanced 9.2 per cent. Rio Tinto Group rose 7.6 per cent in London after increasing in Sydney trading to the highest since November. Cliffs Natural Resources, North America's largest producer, increased as much as 6.8 per cent to the highest since September.

"As margins are very high currently, mills have an incentive to build steel inventories," said Zhao Chaoyue, an analyst at China Merchants Futures in Shenzhen. "They're also more willing to accept higher iron ore prices."

Mills in China, which account for about half of global production, have been boosting output after the Lunar New Year slowdown in February as property prices in some bigger cities advanced. Rising prices for steel have improved their profit margins, reversing a squeeze from last year.

Reinforcement bar, used in construction, has climbed 32 per cent in China in 2016 after five years of losses, with futures in Shanghai closing on Wednesday at the highest level since June. Hot-rolled coil futures also rallied this year. That helped to lift the Bloomberg Intelligence China Steel Profitability Index to the highest in almost five years.

China's overseas purchases of iron ore rose 6.5 per cent to 242 million tons in the first three months, according to customs data on Wednesday. More steelmakers in China will probably restart output as margins improve, aiding iron-ore import volumes this month, Citigroup said in a report. Data on economic growth in the first quarter, as well as industrial production, including crude-steel output, are due for release on Friday.

Iron ore's rebound is a consequence of a more favourable macroeconomic environment, with less risk aversion and a weaker US dollar, according to Artur Manoel Passos, an economist at Itau Unibanco Holding SA in Sao Paulo, who expects prices to average $US46 this year as the surplus widens. "The rally is unsustainable," he said, predicting that the global surplus may expand.

More low-cost mine supply may be on the way this half. Australia's Fortescue Metals Group, the world's fourth-biggest exporter, said on Wednesday it may beat its full-year shipment guidance after its cargoes expanded 6 per cent in the three months to March. Australian billionaire Gina Rinehart's Roy Hill project in the Pilbara is also ramping up output this year toward its 55 million ton a year target.

"We continue to expect both the iron ore and steel markets to be in large surpluses this year, suggesting little in the way of fundamental support," said Caroline Bain, a London-based commodities economist at Capital Economics. "We expect iron ore and steel prices to fall back sharply as we move into the second half of the year."