Iron Ore-Shanghai rebar at 1-week low on tightening fears

Fri Apr 15, 2011 7:49am GMT

* China March inflation quickens to 5.4 pct
* High-grade iron ore quoted below $190/T-traders
* China 2011 steel output seen at 700 mln tonnes
By Manolo Serapio Jr

SYDNEY, April 15 (Reuters) - Chinese steel futures fell more than 1.5 percent to one-week lows on Friday, reflecting investor concerns that accelerating inflation may prompt Beijing to tighten credit further, hitting steel demand in the world's top consumer and producer.

China's economy grew an annual 9.7 percent in the first quarter versus a 9.8 percent clip in the previous quarter, while consumer inflation hit a 32-month high of 5.4 percent in March, government data showed on Friday.[ID:nB9E7C00M]

"It is possible the Chinese central bank will raise the bank reserve requirement again or interest rates," said an iron ore trader in Shanghai.

"This will have an impact on the steel market because a lot of steel purchases are supported by bank loans."

China's central bank has raised cash reserve requirement for banks six times since October, with the latest increase on March 18 taking the reserve ratio to a record 20 percent for the country's big banks.

The most-active steel rebar futures on the Shanghai Futures Exchange fell 1.6 percent to 4,827 yuan a tonne by the close GMT, down 1.6 percent for the week. It dropped to 4,819 yuan earlier, lowest in around week.

Lower steel prices mean demand for key raw material iron ore may also weaken.

Offers for high-grade ore in China slipped to below $190 a tonne, including freight, on Friday, traders said.

Recent deals for 62-63 percent Pilbara iron ore fines were at $181-$183 a tonne, traders said.

INDEXES MIXED, SWAPS FALL

"In my opinion steel demand will not increase dramatically at least in this quarter because the local governments are more interested in building commercial real estate than low-cost housing units but there are limitations to buying condominium units," said another trader in Shanghai.

Still, China's economy watchdog said the country's crude steel output may hit 700 million tonnes this year on expectations of strong demand.

China made 59.42 million tonnes of crude steel in March, up 9 percent from holiday-shortened February. [

Iron ore indexes, which global miners use to calculate prices for supply contracts, ended mixed on Thursday, highlighting split views among market players on the near-term direction of the market.

The Steel Index's 62 percent benchmark .IO62-CNI=SI rose $1.40 to $183.30 a tonne while a similar index by Platts IODBZ00-PLT fell $1.50 to $183.

Metal Bulletin's 62 percent .IO62-CNO=MB was almost flat at $181.14.

Rio Tinto , the world's No. 2 iron ore miner, said on Friday it expects the global market for iron ore to remain tight in the near to medium term, with delays to new supply and strong demand driving prices.

Iron ore forward swaps <0#SGXIOS:> lost more ground on Thursday, reflecting market expectations spot prices may drift lower in the near term.

The Singapore Exchange-cleared April swap contract eased 25 cents to $178 a tonne, May lost $1.25 to $169.50 and June slipped 78 cents to $166.85.
(Additional reporting by Ruby Lian in Shanghai; Editing by Ed Lane, sourced Thomson Reuters)