Iron Ore-Shanghai steel falls for 5th day, ore at 6-week low
Thursday, 16 February 2012 | 00:00
Shanghai steel futures fell for a fifth straight day on Wednesday, dragging the benchmark spot iron ore to its lowest level in six weeks, as demand in top consumer China remained weak.
The Chinese steel market has been subdued since late last year, reflecting tight credit conditions and continuing property curbs, although most market players are expecting a pickup next month with construction activity due to resume after winter.
They include Australian miner Fortescue Metals Group , which sells the bulk of its iron ore to China, and said on Wednesday it expects iron ore prices to rise in the near term.
The most-active May rebar contract on the Shanghai Futures Exchange slid 1.5 percent to close at 4,189 yuan a tonne, just off the day's low of 4,186 yuan, a level last seen on Jan. 10.
Construction steel rebar, which bucked gains in other commodities, has lost more than 3 percent since Thursday.
Slower Chinese steel demand has cut appetite for iron ore, with the benchmark 62-percent grade dropping for a sixth consecutive day on Tuesday, down 1.8 percent to $139.60 a tonne, according to Steel Index, the lowest since Jan. 4.
Tuesday's drop also marked the steepest single-day percentage drop for iron ore since late November.
But traders say the price drop should help revive buying interest in the raw material.
"I have a good handful of buyers, both traders and steel mills who are still looking for cargo, but at the end of the day it's always about the price," said a Singapore-based iron ore trader.
"Once you see the 62-grade dropping to around $135-$136, trust me there will be people buying. It's because at that price they can make money based on current steel prices."
Offers for imported iron ore in China fell $1-$2 per tonne on Wednesday, with 61.5-grade Australian Pilbara fines at $138-$140, 61.5-grade MAC fines at $137-$139, 58-grade Yandi fines at $125-$128, according to Chinese consultancy Umetal.
Indian 63.5/63-grade fines were quoted at $146-$148. Prices include freight costs.
Bids have remained scarce, however. An iron ore trader in Shanghai said he has only sold about a third of a 200,000-tonne cargo, part of which he purchased late last year.
A sale tender by global miner BHP Billiton on Tuesday showed spot prices could fall further. BHP sold MAC fines at $137 a tonne, down $5 from a previous deal, and sold Yandi fines at $128.50, $2 lower than a prior tender, traders said.
Top iron ore producer Vale is selling 240,000 tonnes of 63-grade iron ore fines at a tender that closes later on Wednesday, traders said, some of whom expect bids to come in low after BHP's sale.
Vale is expected to report a 21 percent decline in fourth-quarter net profit on lower iron ore contract prices after it changed the way it charges clients to more closely reflect spot rates.
Iron has gained less than 1 percent so far this year after falling 19 percent in 2011, reflecting limited demand from China where the steel market has been slow since late last year as tighter liquidity conditions and property curbs dented demand.
"We forecast China steel demand growth to slow down to 6 percent in 2012 and 5.8 percent in 2013 from 12.8 percent (compound annual growth rate) during 2008-11, mainly due to property tightening and slowing infrastructure investment growth which accounts for about 50 percent of China's steel demand," Bank of America-Merrill Lynch said in a note.
The continued expansion in China's crude steel capacity could also hurt prices, with another 50 million tonnes in new crude steel capacity expected this year, BoA-Merrill Lynch said, citing estimates from the China Iron and Steel Association.
"As a result, we expect China's steel market to experienceb another difficult year in 2012 and the forecast price will likely fall by an average of 4 percent," the bank said.