Iron ore futures traded at month-high prices on Monday, with Dalian iron ore rallying for the sixth consecutive session on the back of surging energy prices and freight costs amid the Iran war.
The most-traded May iron ore contract on China's Dalian Commodity Exchange traded three per cent higher at CNY790 ($114.19) a tonne.
The benchmark April iron ore on the Singapore Exchange was 2.13 per cent higher at $103.75 a tonne.
Oil prices surged about 20 per cent on Monday as the expanding US-Israeli war with Iran led some major Middle Eastern oil producers to cut supplies. Fears of prolonged disruption to shipping through the Strait of Hormuz chokepoint also contributed to the price action.
Surging energy costs will push up costs related to bunker fuel, insurance, and war risk premium, said managing director at Navigate Commodities Atilla Widnell.
In the medium-to-long term, however, the risk of central banks raising interest rates again to curb inflation risks becomes more likely, dampening the outlook for iron ore and steel, he added.
The Strait of Hormuz is also a major route for China's steel exports to the Gulf, which has become its second largest market, taking some 16 per cent of exports last year as other countries put up trade barriers.
Iran is the world's tenth biggest producer of steel. A blockage of the waterway would also mean that Iran would be unable to sustain its production, as it imports coking coal and exports its steel products, a note from Chinese broker Everbright Futures said.
Iron ore inventory at major Chinese ports rose by 0.67 per cent for the week ended March 6, data from consultancy Steelhome showed.
Spot prices of seaborne iron ore were 1.51 per cent higher at $100.6 a tonne as of March 6, Steelhome data also showed.
Other steelmaking ingredients on the Dalian Commodity Exchange surged, with coking coal and coke up 7.99 per cent and 7.19 per cent, respectively.
Steel benchmarks on the Shanghai Futures Exchange mostly advanced. Rebar gained 1.88 per cent, hot-rolled coil rose 1.99 per cent, and stainless steel grew 1.92 per cent. Meanwhile, wire rod drifted 0.11 per cent lower.
(Reporting by Ruth Chai)