Iron Ore-Shanghai rebar hits contract low, ore extends losses

Wed Oct 12, 2011

* China mills seen cutting steel production

* Baosteel says to keep prices unchanged

By Manolo Serapio Jr

SINGAPORE, Oct 12 (Reuters) - Benchmark China steel futures fell to their lowest ever on Wednesday as weaker demand put further pressure on prices and will likely curb output in the world's top consumer and producer.

Baoshan Iron and Steel , China's biggest listed steelmaker, said it will keep prices of its main products unchanged next month after raising them in September and October, reflecting caution amid slower domestic appetite.

The most briskly traded January rebar contract on the Shanghai Futures Exchange fell as low as 4,255 yuan a tonne, the weakest level for the contract. By 0307 GMT, it was down 0.2 percent at 4,315 yuan.

Rebar, used in construction, dropped more than 11 percent in September, its biggest monthly loss ever, as tighter credit in China thinned demand for steel and a construction boom that fuelled a record production pace earlier in the year lost steam.

"We are going to see some production cuts definitely with steel prices at these levels. Some mills, especially the marginal producers, are not making money anymore," said Henry Liu, regional head of commodity research at Mirae Asset Securities in Hong Kong.

"Sentiment is quite bearish. We have not yet seen the bottom of the steel market."

China's average daily crude steel output declined 2.3 percent to 1.919 million tonnes in mid-September from the previous 10 days, industry data showed last month.

Prices of iron ore, the key component in making steel, may continue to fall if No. 1 buyer China cuts steel output.

Index-based spot iron ore prices, based on Chinese transactions and used by global miners in fixing supply contracts, slid on Tuesday to their lowest since March.

Iron ore with 62 percent iron content fell 1.3 percent to $164.40 a tonne, according to the Steel Index .IO62-CNI=SI and was down 1 percent at $165.25 based on Platts IODBZ00-PLT.

Metal Bulletin's similar gauge .IO62-CNO=MB dropped 1.3 percent to $165.26.

Prices of forward swaps <0#SGXIOS:> also extended losses, with the Singapore Exchange-cleared October contract down $2.58 to $161.67 a tonne and November falling more than $4 to $154.17, as buyers bet on a further decline in spot rates.

"I'm not confident about the market. There will be much less demand in winter because most construction activities will stop," said a Shanghai-based iron ore trader.

But the trader said cuts in China's steel output, if done aggressively, may allow prices to recover as mills rely on product inventories, tightening supply.

"That can help balance the market and boost demand again for iron ore," he said."

(sourced Reuters)