Iron Ore-Shanghai rebar gains for 2nd day, caution stays
Wednesday, 22 February 2012 | 00:00
China steel futures rose for a second day on Tuesday, tracking gains in other commodities after Greece secured a long-sought financing deal which injected cautious optimism in a market still wary about the outlook for steel demand.
The Greek bailout deal, which involves 130 billion euros in new financing for Greece and for Athens to work to cut its debt to 121 percent of GDP by 2020, sent the euro up.
The most-traded May rebar contract on the Shanghai Futures Exchange jumped 1.2 percent to close at the day's peak of 4,228 yuan a tonne, the highest in nearly a week.
"The problem is whether steel can sustain the upward trend.
And with the demand side remaining largely weak we are not really sure about it," said an iron ore trader in Shanghai.
Slow steel demand in China, the world's biggest producer and consumer, has curbed the appetite for iron ore and sent the raw material's prices down more than 2 percent so far this year after falling nearly 19 percent in 2011.
China's move to cut banks' reserve requirement ratio for the first time this year helped Shanghai rebar futures end a seven-day slide on Monday and iron ore to snap a nine-day losing streak.
Iron ore with 62 percent iron content rose 0.6 percent to $135.10 a tonne, according to reference price provider the Steel Index.
Iron ore forward swaps also jumped and the market stayed brisk on Tuesday, traders said, although the physical market remained sluggish.
"The RRR cut won't be good enough, we have to see construction activity in China resume to support iron ore demand going forward," said a Singapore-based trader.
But recent sale tenders with prices concluded at firmer prices are infusing some degree of optimism into the market.
Top iron ore miner Vale sold a capesize cargo of 65-percent grade material at $150.05 per tonne at a tender on Tuesday, traders said. That compared to Vale's recent sale of 64-grade ore at $141 a tonne.
Third-ranked iron ore producer BHP Billiton sold 62.7-grade Newman fines at $138.55 a tonne versus a previous sale of $137.50, and 57.5-grade Yandi fines at $127.15, marginally higher than at a previous tender.
"Some traders in China are now cautiously optimistic and have started withholding their offers," the Steel Index said.
China's daily crude steel output rose 1.9 percent to 1.705 million tonnes in the first 10 days of February, data from the China Iron & Steel Association showed on Monday, as traders replenished stockpiles following the Lunar New Year holiday.
But steel output in China has remained at less than 1.7 million tonnes a day over the past three months following a decline in demand brought about by a slowdown in construction over the winter.
"A stronger and more widespread recovery in (end-user) demand will be needed to see outright growth return to the Chinese steel sector," Commonwealth Bank of Australia said in a note, adding that while the RRR cut will help, the lagged effect of the move points to a relatively muted market in the near term.
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