Iron Ore-Shanghai rebar steady, firm Chinese demand

Mon Aug 22, 2011

* Shanghai rebar flat after falling 1 pct in past 2 days
* Spot iron ore prices extend gains
By Manolo Serapio Jr

SINGAPORE, Aug 22 (Reuters) - China steel futures steadied on Monday after two sessions of losses, reflecting outlook for firm demand in the world's biggest consumer which has supported prices of key steelmaking ingredient iron ore.

The most-traded January rebar contract on the Shanghai Futures Exchange was flat at 4,814 yuan per tonne by the midday break, after falling 1 percent in the past two trading days.

Strong steel demand in China's construction sector has propped up rebar prices, encouraging mills to buy more iron ore.

"Demand from cheap housing will consume part of the surplus capacity. Almost all steel mills in China are now in full operation," said an iron ore trader in China's eastern Shandong province.

Daily steel output in China, also the world's No. 1 steel producer, has stayed above 1.9 million tonnes since late February, compared to an average of about 1.7 million tonnes last year.

Rebar prices in the physical market, currently at around 4,770 yuan per tonne, may rise to more than 5,000 yuan during the remaining months of the year, the trader said.

Iron ore purchases are likely to extend this week with China's steel output expected to stay strong. Last week, there was brisk demand for Australian cargoes amid limited Indian supplies.

"Demand for Australia's iron ore is likely to hold up as long as steel demand in China remains robust," Commonwealth Bank of Australia said in a note.

"As long as China's steel output remains robust, and iron ore supply relatively tight, we currently see a supportive environment for iron ore pricing," the bank said, noting that Chinese steel prices remained well bid in recent months.

Iron ore with 62 percent iron content rose 0.4 percent to $179.50 a tonne on Friday, based on Platts index IODBZ00-PLT, matching the Aug. 4 level.

The reference price at The Steel Index .IO62-CNI=SI gained 0.1 percent at $177.30 a tonne and Metal Bulletin's gauge .IO62-CNO=MB edged up less than 0.1 percent to $177.44.

"Inquiries have increased and I think we'll see more mills restocking this week. But I think some buyers are also being cautious given the uncertainty over the global economy," said a Singapore-based iron ore trader.

Offers for imported iron ore in China were steady on Monday, with Australian Newman 62-percent grade fines at $181-$183 a tonne, including freight, and Indian 63.5/63 grade ore at $185-$187, according to Chinese consultancy Umetal.

In the futures market, the most-traded August iron ore contract on the Singapore Mercantile Exchange was unchanged at $177.50 a tonne.

Volumes traded on SMX's iron ore futures had been thin since the bourse launched the contract on Aug. 12 with market participants opting for widely-traded swaps instead.

(sourced Reuters)