Iron Ore-Spot offers rise $2, sustained gains unlikely

Tue Jun 14, 2011 4:17am GMT
SHANGHAI, June 14 (Reuters) - Spot iron ore prices rose further on Tuesday, as Chinese steel mills continued rebuilding inventories, driving up two major global indexes for a fifth day.
Indian ore with 63.5/63 percent iron content was quoted at $181-$183 per tonne, including freight, on Tuesday, up $2 from Monday, Chinese consultancy Umetal said.
"Steel mills have come back to market to replenish stockpiles since last week, and the continued tightness in Indian ore supply has also backed up prices," said an iron ore trader in China's coastal Shandong province.
Chinese steel mills have continued to raise production ahead of a much anticipated power rationing in the summer season, bringing the nation's total crude steel output to a peak of 60.25 million tonnes in May.
"Iron ore inventories at steel plants have stayed low, and some mills also plan to start restocking next week, extending this round of restocking," said Xu Guangjian, iron ore researcher at Umetal.
Two key iron ore indexes, based on Chinese spot prices, extended gains for a fifth day on Monday after losing around 6 percent last month.
Platts 62 percent index IODBZ00-PLT rose $1.25 to $175.25 per tonne, and Metal Bulletin's similar gauge .IO62-CNO=MB gained $1.16 to $173.87.
The Steel Index's 62 percent benchmark .IO62-CNI=SI lost 80 cents to $172.30 per tonne, but is still up 2 percent so far this month.
Shanghai rebar futures traded almost flat at 4,807 yuan ($741.5) per tonne in morning trade on Tuesday, after slipping 0.6 percent on Monday.
HOW LONG WILL GAINS BE SUSTAINED?
Umetal's Xu expected the fresh purchases, after steel mills had suspended spot buying for months, to extend over the following two weeks, helping offers of seaborne ore edge up further.
Forward swaps mostly extended losses on expectations that looming power shortages in China could depress steel output and therefore prices.
Electricity supplies in a number of regions have already been capped, and some small mills have been affected, but CISA last month cast doubt on the idea that power restrictions would have a significant impact on steel supplies.
The steel market usually weakens in the summer season as high temperature slows construction activities, hampering demand for steel products.
The Singapore Exchange-cleared June contract fell 31 cents to $172.19 a tonne, July dropped $1 to $170.50 and August lost $1.42to $169.25.
China's inflation accelerated in May to a 34-month high of 5.5 percent, slightly above expectations, supporting the case for tighter monetary policy even as economic growth shows signs of slowing down.
Traders and analysts expect inflation to pick up again in June, prompting the central bank to raise interest rates as soon as this month, for the fifth time since October.
"I expect iron ore price rises will not be sustained in July as Beijing might undertakes more tightening policies to curb liquidity and bank loans, and steel mills will face tighter credit conditions that will keep them from buying much," the Shandong trader said. ($1=6.483 yuan) (Reporting by Ruby Lian and Jaqueline Wong; Editing by Clarence Fernandez, By Thomson Reuters)