Iron Ore-Spot eyeing biggest weekly fall since July 2010

Sat, Oct 21, 2011

* Iron ore drops to lowest in a year, more falls seen
* Sellers cut offer prices further, swaps down
* Key Shanghai steel futures suffer biggest weekly slide

By Manolo Serapio Jr

SINGAPORE, Oct 21 (Reuters) - Spot iron prices slid to their lowest in a year and are set to post their biggest weekly decline in 15 months as demand from top importer China remained thin, fuelling expectations prices could drop further.

Weaker demand for steel in China, the world's biggest consumer and producer, dragged down steel prices and slashed appetite for iron ore, the key steelmaking raw material.

But iron ore prices have fallen so steeply and so fast in the past two weeks, surprising many market players, that most Chinese mills have opted to stay out and wait until prices stabilise.

"We are not able to sell one tonne of iron ore now and I don't expect the market will see any big improvement at least before early 2012," said an iron ore trader in Shanghai.

Iron ore with 62 percent iron content fell 1.4 percent to $145 a tonne on Thursday, according to Platts IODBZ00-PLT, a level not seen since early October 2010.

Iron ore has lost 8.1 percent so far this week, its seventh straight week of losses and its sharpest drop since July 2010 when it fell 8.8 percent.

Traders said prices are likely to drop further but most were unsure how low they would go.

"We are not seeing a floor so far, we are just seeing a huge hole, like a black hole," said an iron ore trader in Singapore.

Hopes that Chinese demand will stay strong despite the troubles in the Western world had helped keep iron ore prices strong for the most part of the year.

But a sustained fall in Chinese steel prices dashed those hopes as worries grew that China's economy may also be slowing down.

China's economy expanded 9.1 percent in the third quarter, its weakest pace since early 2009 amid weaker export markets and tighter monetary policy.

OFFERS, SWAPS FALL

The sentiment in the iron ore market is so bearish and tense that some big miners have asked the few steel mills they have been selling to not to disclose prices, traders said.

"They are telling the mills not to reveal the prices because they are scared. The more prices are revealed, the more prices will go down," said the Singapore trader.

Sellers have cut prices further on Friday, with Indian 63.5/63 grade iron ore fines quoted at $153-$156 a tonne, including freight, said Chinese consultancy Umetal. That was down $2 from Thursday and $13-$14 cheaper than last week.

Australian 61.5-grade Pilbara fines were offered at $141-$143 a tonne, down $2 from Thursday and $17 lower from the previous week.

Reflecting the bearish mood, prices of forward swaps resumed their decline on Thursday after rising in the previous session.

The Singapore Exchange-cleared November contract fell $4.12 to $124.50 a tonne, a steep discount to spot. The December contract slipped $4.62 to $122.25 and January dropped $4.19 to $121.31.

Given stagnant sales of steel products, a number of steel mills in China will have to cut production soon, said the Shanghai trader.

In the spot market, prices of steel products in China have dropped by up to 50 yuan a tonne per day in recent times, traders said.

The most-traded January rebar contract on the Shanghai Futures Exchange rose 0.9 percent to close at 3,957 yuan a tonne, snapping a six-day losing streak. But for the week, rebar shed 8.3 percent, the biggest weekly drop for the January contract.

(source Reuters)