Iron Ore-Rally stalls as China buying slows; India state seeks ban

Fri Feb 18, 2011 8:44am GMT

* Steel mills and traders cautious

* Indian 63.5 pct ore quoted below $200/tonne

* Iron ore swaps fall for second session

* Another Indian state seeks export ban
(Adds Chhattisgarh seeking ban, comment, updates rebar prices)

By Ruby Lian and Manolo Serapio Jr.

SHANGHAI/SINGAPORE, Feb 18 (Reuters) - Spot iron ore prices eased on Friday, as top buyer China stepped back after a recent surge in raw material costs and steel prices recoiled on slow end-user demand.

Iron ore prices have risen around 13 percent this year, adding to gains of more than 40 percent in 2010, but a decline in price offers from sellers and sharp falls in forward swaps suggest prices may have hit a tentative peak under $200 a tonne.

"Offers have fallen below $200 per tonne by the end of this week after steel mills and traders held back from buying more," said an iron ore trader in China's eastern Shandong province.

"A few steel mills have changed their minds and refused to sign deals after verbally agreeing to buy material from traders earlier."

Offers for Indian ore with 63.5 percent iron content dropped to $196-198 per tonne, including freight, on Friday, from as high as above $200 earlier this week, trading sources said.

Chinese steel prices had risen alongside iron ore, backed by anticipation of a pickup in demand when construction activity resumes. But purchases from end users have remained slow, triggering a correction in prices.

The most active rebar contract for October delivery on the Shanghai Futures Exchange closed at a three-week low of 4,985 yuan a tonne on Friday, down 3.5 percent for the week. The contract touched a series of record highs last week.

Rising iron ore inventories at major ports have also weighed on spot prices. China's iron ore imports reached a record of 68.97 million tonnes in January.

OUTLOOK NOT BEARISH

Supply squeeze from India and firm demand from China had spurred the rally in iron ore prices, forcing steelmakers to pass on higher cost to customers.

Another Indian state, Chhattisgarh, is looking at banning iron ore exports, joining top producing state Orissa in considering halting shipments to meet domestic demand.

"There's probably a lot of investors looking for reasons to sell right now, but this news is going to hold that profit-taking for the time being," said Mark Pervan, senior commodity analyst at ANZ Bank in Melbourne.

Iron ore price indexes, which global miners use in setting quarterly supply contracts with mills, stayed near record highs, but forward swaps fell sharply for a second straight session on Thursday. The Steel Index's 62 percent iron ore benchmark .IO62-CNI=SI was steady at $191.90 a tonne, including freight, a record level reached in the previous session. Platts' 62 percent iron ore index IODBZ00-PLT eased 50 cents to $192.50, and Metal Bulletin's 62 percent index .IO62-CNO=MB rose $1.01 to $191.70.

Prices of Singapore Exchange-cleared forward swaps slumped for all 24 months covered by the contracts, with the March-to-August contracts showing the biggest losses, reflecting growing concerns on spot prices in coming months. The March contract slid $6.38 to $175 per tonne and April fell $5.25 to $163.50.

However, some analysts still expect China's iron ore appetite to bounce back with the country looking to produce a record of 660 million tonnes of crude steel this year. "We estimate iron ore spot prices to go higher, propping up contract prices for the second quarter," Le Yukun, an analyst with BOC International Securities said in a research note.

Le also estimated that average import prices would rise 15 percent this year and 5 percent in 2012. The China Iron & Steel Association said steel prices are expected to rise in the near term as raw material will remain costly and steel demand, both at home and abroad, will pick up gradually.
(Reporting by Manolo Serapio Jr.; Editing by Manash Goswami,sourced:Thomson Reuters)

Tags:iron ore top buyer, offers, rebar contract, Shanghai Futures Exchange,steelmakers,ANZ Bank,market analyst, BOC International