Still bearish on iron ore? You may have missed October's 14% jump in new Chinese steel orders

Iron ore on Friday added a $1 to scale $120 a tonne again – a psychologically important level for the industry and a 38% improvement since hitting a three-and-a-half year low of $86.70 in September.

The fortunes of the steelmaking raw material has become closely tied to the ups and downs (mostly ups) of the Chinese economy.

With investment in infrastructure and housing representing such a big part of China's GDP, steel is considered one of the best weather vanes for what is now the world's second largest economy.

And those that have turned bearish on the iron ore market after the shock of the precipitous declines during the third quarter will take heart from the latest numbers in China.

According to the China Federation of Logistics and Purchasing, the purchasing managers index (PMI) for China's steel industry rose to 52.7 in October, a 9.2% improvement from September 2012.

PMI measures activity within a sector and a figure over 50 represents expansionary conditions.

The most encouraging number was the new orders index which increased by 13.8% to 55.4, a significant rebound and a strong indication of a rapidly improving industry.

At the same time Data from the China Iron and Steel Association showed that daily steel products sales volume of 76 key steel enterprises reached 1.27 million tons between October 11 and October 20, up 12.1% from the previous ten days.

The steel production index stood at 57.1 in October, up a robust 17.4% from the previous month while the purchase quantity index showed a similar improvement.

The only negative news was a month-on-month increase in the measure for raw material inventories of 5.8%, although at the 46.8 level it does point to continuing reduction of stockpiles; only at a slower pace.

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