Iron ore extends gains despite slowing Chinese steel market
Saturday, 16 June 2012 | 00:00
Price offers for Australian and Brazilian iron ore cargoes in top market China rose on Friday, as benchmark rates stretched gains to a fifth day, with traders betting on more price rises while mills were hesitant to buy more amid slow steel demand.
Iron ore has gained 2.5 percent so far this week, while Chinese steel prices are nearly flat, underscoring a divergence between markets that are typically closely linked.
A fall in spot iron ore prices to two-week lows last week attracted buyers back into the market as Chinese steel mills replenished stocks, encouraging traders to bid up the market and recover from losses they incurred in May when prices slid to their lowest for the year.
But unless steel prices rebound, iron ore prices may soon run out of steam, as mills wrap up restocking and traders run out of buyers willing to take cargoes at current prices.
Price offers in China for cargoes from top iron ore exporter Australia rose by a dollar per tonne for a second day on Friday, while those from No. 2 supplier Brazil also increased by a dollar a tonne, said industry consultancy Umetal.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI rose 0.8 percent to $134.70 a tonne on Thursday, according to Steel Index, its highest since June 1 and extending its winning streak to a fifth day.
Iron ore has climbed 2.5 percent this week, its second weekly gain in three.
While more traders than mills are snapping up iron ore cargoes, they are also quick in selling them. A major Chinese trading firm bought a cargo at $144 a tonne on Monday and sold it on Thursday at $146, traders said.
"Traders are going for quick deals these days. I don't think they're 100 percent confident on the future of the steel market," said an iron ore trader in Shanghai.
"We got feedback from several mills, saying that product sales are still very slow."
Steel demand in China, the world's biggest consumer and producer, remained sluggish as shown by barely moving prices, with Chinese economic growth easing and demand weakening during summer when construction projects slow.
The price of steel billet in Tangshan in China's top steel producing Hebei province hovered at 3,600 yuan a tonne this week, while Shanghai rebar futures are up a modest 0.3 percent.
"Some mills are buying, but most are not," said a trader in Hong Kong, with Chinese steel producers becoming increasingly reluctant to take up cargoes as prices rise.
Top miner Vale sold a 64.76-percent grade iron ore cargo at $147.28 a tonne at a tender on Thursday, nearly $2 more than the price for a similar grade last week, traders said.
Vale is offering 250,000 tonnes of 63.8-percent grade iron ore in a tender closing later on Friday.
BHP Billiton sold a shipment of 62.7-percent Australian Newman iron ore fines at $139 per tonne versus a sale of $138.10 earlier this week, traders said.