Iron Ore-China rebar sags to six-week low, weighs down ore
Friday, 17 February 2012 | 00:00
China steel futures fell to a six-week low on Thursday as slow demand in the world's top consumer continued to drag down prices and pushed iron ore, steel's raw material, to its weakest level since late December.
The most-active May rebar contract on the Shanghai Futures Exchange fell as low as 4,155 yuan ($660) a tonne, a level not seen since Jan. 5, before closing at 4,169 yuan, down half a percent.
Rebar, used in construction, has been falling for six consecutive sessions and lost nearly 4 percent since last Thursday. Traders say the downturn could extend unless construction activity in China picks up next month.
"Steel demand is still very low and the weakness could continue until the rest of this month. We are hoping better weather from March would lead to a restart of construction projects," said an iron ore trader in Shanghai.
The weakness in China's steel market has limited demand for iron ore, with traders slashing prices of imported ore by at least a dollar per tonne on Thursday, according to prices quoted by industry consultancy Umetal.
Iron ore with 62 percent iron content, a market benchmark, fell 1.6 percent to $137.40 a tonne on Wednesday, said Steel Index, the lowest since Dec. 28.
Wednesday marked iron ore's seventh straight day of declines, its longest losing streak since October when prices fell to levels not seen since December 2009 because slack Chinese demand curbed steel prices, and consequently, output.
Reflecting market expectations spot rates could fall further, prices of iron ore forward swaps mostly dropped again.
"Most mills are very cautious in purchasing any new cargoes unless there's any sign that the steel market would bounce back," said another Shanghai-based trader.
With relatively ample iron ore inventories at Chinese mills, any immediate need could be bought off stockpiles at ports where buyers can opt to secure smaller cargoes versus the bigger fresh shipments in the seaborne market, the trader said.
Top iron ore miner Vale sold a 240,000-tonne cargo of 63-percent grade iron ore fines at $138.50 a tonne, cost and freight, on Wednesday, traders said, a level some thought was reasonable and in line with current market rates given the size of the cargo and the higher silica content.
Vale is selling another 130,000 tonnes of the same grade at a tender that closes later on Thursday, said a physical iron ore trader in Singapore.
The Rio de Janeiro-based miner reported a 21 percent drop in fourth-quarter net profit on increased costs and lower iron ore prices that analysts say could keep earnings under pressure this year.
Higher steel inventories and winter shutdowns of construction projects have weakened steel demand in China, Commonwealth Bank of Australia (CBA) said.
"But (it) also reflects modest growth in money and bank credit, concomitant slowing in real estate development; all combined with a weakening external environment," CBA said.
"If, as we expect, the Chinese authorities begin to selectively loosen policy this quarter and next, construction activity and steel demand should pick up through 2012, supporting iron ore prices."