Mon Aug 29, 2011
* China daily crude steel output remains high
* Indian court expands mining ban in Karnataka
By Manolo Serapio Jr
MANILA, Aug 29 (Reuters) - China steel futures dropped for a third day running to hit two-week lows on Monday, with sentiment hurt by the country's latest move to tighten liquidity, which could curb steel demand as well as bank funds for steelmakers.
China has ordered banks to include their margin deposits in required reserves at the central bank to siphon off excess liquidity, banking sources said on Friday, part of Beijing's campaign to fight inflation.
The liquidity tightening move countered news that China's crude steel output stood at 1.947 million tonnes a day during the period Aug. 11-20, up 0.3 percent from the first 10 days of the month.
"China's high steel output actually matches the overall solid demand in the country, as we can see that large steel inventories have been used up by downstream sectors," said Xu Xiangchun, analyst with industry consultancy Mysteel.com.
"But I am still cautious as the further tightening moves may continue to weigh on demand from industrial sectors, investment on property sector may slow down, while other industrial sectors may also see slower growth."
The most-active January rebar contract on the Shanghai Futures Exchange fell as low as 4,768 yuan a tonne, its weakest since Aug. 11. By 0412 GMT, it was down 0.6 percent at 4,773 yuan.
The tightening move could also constrain funding for steelmakers, said an iron ore trader in China's eastern Shandong province.
"This is not a good time to tighten liquidity ahead of the peak steel consumption season in September and October," he said.
Recent rises in China's steel prices, spurred by increased output as producers kept pace with strong construction steel demand, had encouraged mills to restock iron ore, the key raw material.
But iron ore price gains had been tepid as mills didn't want to buy aggressively amid uncertainties facing the global economy.
Spot iron ore with 62-percent iron content rose 70 cents to $179.64 a tonne on Friday, according to Metal Bulletin .IO62-CNO=MB. Two similar reference prices, Platts IODBZ00-PLT and the Steel Index .IO62-CNI=SI, were steady at $180.25 and $178.50, respectively.
Tight Indian supplies had helped support iron ore prices as monsoon rains, logistical problems and policy issues continued to disrupt shipments from the world's No. 3 supplier.
India's Supreme Court on Friday extended a ban on mining to two more districts in the iron-ore rich southern state of Karnataka. The mining ban in Tumkur and Chitradurga districts takes to three the number of districts affected by the ban after a similar imposition was made in Bellary.
Prohibition on mining in the three districts was recommended by a court-appointed panel on Aug. 19, as part of efforts to control illegal mining.
Karnataka introduced a ban on exports in July 2010 which it said aimed to curb illegal mining. The Supreme Court ordered the export ban lifted in April although the southern state has yet to issue export permits.
"The mining ban is supportive of prices but I think the market is already convinced there's still a long road to go before Karnataka can make any exports," said the Shandong-based trader.
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