Iron Ore-Spot stretches losses as cargoes flood market

Thu Oct 27, 2011

* Iron ore falls more than 3 pct to lowest since July 2010
* Operating at full capacity, miners continue shipments
* Iron ore price offers drop another $5-$8/tonne
By Manolo Serapio Jr

SINGAPORE, Oct 27 (Reuters) - Iron ore price offers fell further on Thursday as slow Chinese demand and hefty spot supplies extended the losing streak of the steelmaking raw material whose value has fallen 30 percent since September.

Sellers of Australian, Brazilian and Indian ore to top importer China cut prices by $5-$8 a tonne from Wednesday, said Chinese consultancy Umetal, as miners, many of whom continue to produce at full capacity, tried to clear shipments that have piled up.

"Miners are flooding the market with cargoes and that's putting a lot of pressure on the spot market and rates are coming off," said a Singapore-based iron ore trader.

Despite the sharp fall, spot iron ore prices are still more than double miners' production cost of around $50 a tonne, for the big producers in Australia and Brazil, traders said.

Top iron ore producer Vale said on Wednesday it expected prices to remain high "for a long period of time", driven by solid demand from emerging economies.

Second-ranked Rio Tinto this week blamed Vale for the steep drop in iron ore prices, saying its bigger rival was diverting Europe-bound shipments to China. But Rio said it was producing at record rates.

Iron ore with 62-percent iron content fell 3.3 percent to $127.40 a tonne on Wednesday, its weakest since July 23, 2010, according to the Steel Index .IO62-CNI=SI.

Iron ore has shed nearly 11 percent so far this week, on track for its steepest weekly decline ever.

Australian 61.5-percent grade Pilbara iron ore fines were quoted at $121-$123 a tonne, including freight, on Thursday, down $7 from Wednesday, said Umetal.

Offers for Indian 63.5/63-grade fines fell $8 to $136-$138 a tonne.

"Bids are too low. I think the mills are not in a hurry to buy so they bid very low, hoping they can catch a bargain," said an iron ore trader in Shanghai, adding he saw a bid for the Indian 63.5/63 grade at as low as $126.

"Mills expect the market to dip a bit further so they want to try their luck to get some cheap deals," he said.

China's appetite for iron ore has weakened sharply because of slowing demand for steel in the country, dented by uncertainty in the global economy and Beijing's monetary tightening campaign.

Prices of iron ore forward swaps cleared by the Singapore Exchange <0#SGXIOS:> fell sharply on Wednesday, reflecting investor expectations spot rates could lose more ground.

The November contract lost the most, dropping $8.67 to $116.83 a tonne, followed by December which fell $7.33 to $116.17.

(sourced Reuters)