Fri Mar 25, 2011 4:25am GMT
* Chinese mills restock on iron ore at slow pace
* Shanghai rebar futures steady
* BHP details $9.5 bln iron ore, coal expansion plan
By Manolo Serapio Jr
Steelmakers in China, the world's biggest steel market, had slowed iron ore purchases after aggressive stockpiling early this year lifted prices to record highs in mid-February.
Iron ore prices have lost around 13 percent since hitting those peaks last month.
"Chinese mills have kept production at a high level and they've run down on iron ore inventories quite dramatically to the point where they now have to come back to the market and buy," said Graeme Train, commodity analyst at Macquarie Securities in Shanghai.
"The problem is that mills don't want to commit to a large amount of tonnage when steel prices are not performing very well, so it seems like you've hit a bit of stabilisation and it's a bit tricky for prices to fall because mills have to buy."
The most active October contract on the Shanghai Futures Exchange was steady at 4,716 yuan a tonne by the midday break.
The contract is down 0.8 percent on week, having fallen to four-month lows on Tuesday.
Offers for Indian ore with 63.5 percent iron content improved to $171-$173 a tonne, including freight, on Friday, said Chinese consultancy Mysteel, from $170-$172 for most of this week.
The Steel Index's 62 percent iron ore benchmark .IO62-CNI=SI rose 0.5 percent to $166.40 a tonne on Thursday, while other indexes were steady.
Platts 62 percent index IODBZ00-PLT stood at $168.50, unchanged for a fifth straight session, and Metal Bulletin's 62 percent index .IO62-CNO=MB was nearly flat at $164.92.
STEEL DEMAND NOT COLLAPSING
Iron ore prices are likely to stabilise at current levels unless Chinese steel demand picks up strongly, analysts said, while market players assess the impact on steel demand from a reconstruction in disaster-hit Japan.
Japan's steel mills were largely unscathed after the ferocious March 11 earthquake and tsunami and production disruptions would likely mean a total volume loss of 10 million tonnes for 2011, said Colin Liang, analyst at Bank of America Merrill Lynch.
That represents 9 percent of the 109.6 million tonnes of crude steel Japan made last year. Japan is the world's second-largest steel producer after China.
"Iron ore prices should be going up. Steel demand seems fine, it's not exciting but not collapsing either and production is at a reasonably high level," said Macquarie's Train.
"But because credit is a bit of an issue, people are not forward ordering a lot of material, they're not willing to build up their own inventory and that's taken some of the urgency out of purchasing and as a result you're just not seeing any real movement in prices at the moment," he added.
China has been tightening monetary policy and restricting credit to cool growth.
Further gains in iron ore forward swaps <0#sgxios:> suggested some players remain upbeat, with all 24 contracts through February 2013 edging up, and big gains seen for the nearby second-quarter period.
In industry news, BHP Billiton , the world's No. 3 iron ore producer, said it has approved $9.5 billion of capital investment to expand its Australian iron ore and coal mining operations.
"The big risk that hangs over the iron ore market is when you look at 2013, 2014 and all of the supply that's expected to come online following a lot of these capital expenditures," said Ben Westmore, commodity economist at National Australia Bank.
Spot iron ore prices, which gained more than 40 percent in 2010, are likely to remain high until new supply comes in.
Global seaborne supply of iron ore has been increasing by 20 million to 40 million tonnes in recent years, but production expansion plans by global miners could boost annual supply by around 100 million tonnes from late 2012 to early 2013, analysts have said.(sourced Reuters)
Tags : raw material, steel plants,