Iron ore prices rose to $90 a tonne amid stronger Chinese demand, approaching the summer peak of $115 a tonne.
The Baltic Dry Index rose 2 per cent to 3,247 points, the highest level since early August, but was still below June's peak of almost 4,300. The Baltic is also well below last year's record high of more than 11,000. The surge came as miners Rio Tinto, BHP Billiton and Vale of Brazil reported strong demand for iron ore and coking coal. The arrival of winter in Europe also boosted demand for thermal coal, used to fuel power plants, traders said.
Iron ore prices rose to $90 a tonne amid stronger Chinese demand, approaching the summer peak of $115 a tonne. The rise came as the China Iron and Steel Association, Beijing's top negotiator on annual price talks with miners, said that it saw ore prices rising in the next round of discussions.
On commodity exchanges, energy, metals and agricultural prices were volatile as risk aversion helped the dollar rally.
Much of the dour sentiment was derived from equity markets, which fell in response to fears over the banking sector, as Britain doled out further bailout cash while Switzerland's UBS posted an unexpectedly large loss. Talk of the early removal of government stimulus also undermined sentiment. But following Monday's favourable purchasing manager reports on the manufacturing sector, US factory orders continued the recovery theme, rising a better-than-expected 0.9 per cent.
Base metals prices were mixed in spite of the improvement in manufacturing activity. "Investors are more concerned that the widespread signs of recovery generated by all the recent PMI releases will lead governments to cut economic and fiscal support too early," said Alex Heath at RBC Capital Markets.
But precious metals were led higher by gold, which hit a record high of $1,086.10 an ounce after India bought 200 tonnes of bullion from the International Monetary Fund.
By early afternoon in New York, spot gold was trading at $1,083. This helped drive silver 2.6 per cent higher to $16.84 an ounce. Platinum rose 0.6 per cent to $1,341.50 an ounce.
Corn and soyabean prices continued to head higher even as weather conditions in the US showed signs of improvement. Wet weather in the Midwest has hindered farmers; as of the end of last week, the corn harvest was only 25 per cent complete, compared with 53 per cent at the same point last year. The soyabean harvest was 51 per cent complete compared with 85 per cent a year earlier.
CBOT December corn rose 1.6 per cent to $3.88¼ a bushel. Soyabeans were up 1.4 per cent to $10.11½ a bushel.
Oil markets recovered after early weakness following the factory orders data.
Nymex West Texas Intermediate climbed $1.47 to $79.60 a barrel, while Brent crude added $1.56 to $78.11 a barrel.
Meanwhile, at the Mombasa tea auctions, strong demand saw the price of best Kenyan Broken Pekoe tea rise to $5.21 per kilo, up from last week's $5.10.