Iron Ore-Spot prices fall on slow China steel demand

Mon Apr 18, 2011 3:39am GMT

By Manolo Serapio Jr

SINGAPORE, April 18 (Reuters) - Spot prices of iron ore fell on Monday as a wobbly near-term outlook for steel demand in top consumer China kept steelmakers from buying more of the raw material.

Many Chinese steel mills had restocked iron ore ahead of an expected pickup in construction activity in the current quarter, but steel demand had so far been slow, prompting steelmakers to cut prices for May.

"Since last week, purchases were dropping," said an iron ore trader in Shenzhen. "Many mills already have bought a lot for stocks so they can wait for prices to drop before they buy again."

China's latest bank reserve hike on Sunday, the fourth this year, was expected to further tighten credit for steel producers and curb their capacity to buy raw materials, traders said.

Indian ore with 63.5 percent iron content was quoted at $186-$188 a tonne, including freight, on Monday, down from as much as $190 last week.

Iron ore indexes, based on China spot deals and which global miners use in computing supply contract prices, dropped on Friday.

Platts 62 percent iron ore index IODBZ00-PLT fell $1.75 to $181.25 a tonne and a similar benchmark by The Steel Index .IO62-CNI=SI slipped $1.80 to $181.50.

Metal Bulletin's 62 percent gauge .IO62-CNO=MB was off 47 cents at $180.67.

"Market participants are divided over where they see the market heading in the short term," The Steel Index said in a note. "Until clear direction is shown we expect to see prices oscillate a little."

Data on Friday showed China's daily crude steel output stood at 1.92 million tonnes in March, still near the record 1.94 million tonnes in February, as mills anticipated a recovery in demand.

If that production pace continues, Chinese buyers may soon pick up iron ore again, limiting any losses in spot prices.

"I don't see iron ore prices slumping in the near term as global commodity prices are still rising and China itself is also facing high inflation," said an iron ore trader in Beijing.

But price cuts for May by Chinese steelmakers suggest steel demand may not pick up soon.

Major Chinese steelmaker Angang was the latest to drop prices for main products for May bookings. Last week, pricing leader Baoshan Iron & Steel Co Ltd also announced a cut in May prices.

Outside China, Japanese steelmakers kept prices unchanged after last month's deadly earthquake and tsunami crippled production for many manufacturers, disrupted supply chains and delayed construction projects.

(Additional reporting by Ruby Lian in Shanghai;Editing by Clarence Fernandez, sourced Thomson Reuters)