Iron Ore-Shanghai rebar ends 7-day slide on China easing
Tuesday, 21 February 2012 | 00:00
China's efforts to boost lending lifted Shanghai steel futures by half a percent on Monday after seven straight days of losses, but the modest gain suggests steel demand will remain weak until Beijing eases property market curbs.
China on Saturday said that it would cut the amount of cash banks need to keep with the central bank, joining global counterparts in stimulating economic growth.
The 50-basis point cut, estimated to free up between 350-400 billion yuan ($55.6-$63.5 billion) in additional liquidity, was the second reduction in Chinese banks' reserve requirement ratio (RRR) since November and takes effect on Feb. 24.
The most-traded May rebar contract on the Shanghai Futures Exchange closed up 21 yuan at 4,178 yuan ($660) a tonne, off a session high of 4,192 yuan.
The RRR cut confirms that the "Chinese authorities are comfortable that inflation and property prices are under control", Commonwealth Bank of Australia said in a note, adding it should support commodity demand and prices.
But some traders said the rate cut would do little to spur steel demand.
"The key thing that will push up steel prices sharply would be demand from the housing property market, and we believe that the Chinese government will not loosen its grip on the market," said a physical iron ore trader in Singapore.
China's daily crude steel output rose a modest 1.9 percent to 1.705 million tonnes in the first 10 days of February from late January, data from the China Iron and Steel Association showed.
Slower steel demand in China, the world's biggest consumer and producer, has weighed on demand for raw material iron ore.
Traders say spot prices could drop further this week before reaching a level that would lure buyers back into the market, with steel producers' margins getting squeezed.
Iron ore with 62 percent iron content fell 1.8 percent to $134.30 a tonne on Friday, according to Steel Index, the lowest level since Dec. 20.
Friday was iron ore's ninth straight day of decline. It fell more than 7 percent during that period, its longest losing streak since a 15-day slide in October when prices fell to levels not seen since December 2009 because slower Chinese demand curbed steel output.
In Japan, the world's No. 2 steel producer, output fell the most in more than two years in January on weak exports, marking the fifth straight month of decline.
The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities including iron ore, fell for a third day on Friday as weak cargo business on the capsize and panamax markets battered sentiment.
Global miner BHP Billiton is holding a sale tender for Newman and Yandi iron ore fines which is due to close later on Monday and the market expects bids to remain low, in line with the price drop at recent tenders, traders said.
Steady offer prices of imported iron ore in China on Monday could mean spot rates may find a floor soon, said a Shanghai-based trader.
Prices of forward swaps also regained some ground on Friday after recent losses.
In a bid to boost output, Rio Tinto is investing $518 million in driverless trains for its Western Australian rail network. The world's second biggest iron ore miner aims to increase output to 353 million tonnes a year by 2015 from 220 million tonnes now.
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