Iron Ore-Spot prices, swaps rise; but demand thin

Tue Jul 5, 2011

* Some Chinese mills restocking on iron ore
* Key indexes rise for second day, swaps climb
By Manolo Serapio Jr

SINGAPORE, July 5 (Reuters) - Spot iron ore prices rose on Tuesday as some Chinese steel mills restocked but demand was modest, which should keep prices of the steelmaking ingredient in tight ranges.

A sharp rise in prices of iron ore forward swaps suggested market players were expecting physical prices to sustain gains, although traders said rises may be short lived with construction demand in top steel consumer China hitting a seasonal summer lull.

"If spot prices continue to go up, they'd probably rise $4-$5 at best before subsiding again. Demand is not very strong and mills are being cautious," said a Singapore-based trader.

Offers for Indian 63.5-63-grade iron ore fines rose $1 to $176-$178 a tonne, including freight, on Tuesday, said Chinese consultancy Umetal.

Two key indexes, which track spot deals in China, rose for a second straight day on Monday.

The Steel Index's 62 percent benchmark .IO62-CNI=SI edged up 50 cents to $168.20 a tonne and a similar gauge by Metal Bulletin .IO62-CNO=MB rose $1.47 to $168.83.

A third index, Platts IODBZ00-PLT, was unchanged at $171.50.

Firmer steel prices in China helped revive interest in iron ore. The most-traded October rebar contract on the Shanghai Futures Exchange touched a three-week top of 4,818 yuan per tonne, before closing nearly flat at 4,788 yuan.

"There were inquiries about cargoes from traders and mills, but on my side, I'm not seeing firm demand," said an iron ore trader in Shenzhen.

"Even if they buy, they will probably buy in small quantities. They don't stock much because steel demand is slow and it's difficult for them to get credit."

China has been in a monetary policy tightening mode to tame inflation running at a near three-year high and the central bank on Monday vowed to keep its "prudent" policy.

Still, expectations that a recent drop in iron ore prices would encourage Chinese steelmakers to replenish stockpiles boosted forward swaps <0#SGXIOS:> on Monday, with contracts from July 2011 through July 2013 all rising.

The Singapore Exchange-cleared July 2011 contract rose the most, up more than $5 to $168.87, followed by August which gained $4.18 to $166.37 and September which climbed $3.81 to $165.37.

SGX clears around 95 percent of globally traded swaps.

Volumes of SGX swaps stood at 3.04 million tonnes in June, the second highest on record since SGX began clearing iron ore swaps in April 2009, data from its website showed.

That compares to a record 3.45 million tonnes in May.

Global volume of iron ore swaps may jump to 80 million tonnes by 2015, around four times last year's level, as interest in the hedging tool rises, an industry official said last week. (Reuters)