Iron Ore-Spot rises for third day, outlook shaky

Thu Nov 3, 2011

* Market may be seeing "temporary stability" -trader
* UBS cuts Q4 iron ore price forecast to $143 from $166
* Volume of iron ore swaps hit record high in Oct
By Manolo Serapio Jr

SINGAPORE, Nov 3 (Reuters) - Spot iron ore rose for a third day running on Thursday although steady price offers point to a shaky recovery for the steelmaking raw material amid an unclear demand picture in China.

Iron ore with 62 percent iron content rose 0.6 percent to $120.75 a tonne on Wednesday, according to Platts IODBZ00-PLT.

Iron ore has risen 3.4 percent since Monday after a slide of more than 35 percent in September and October drew some Chinese buyers back into the market, although traders say it may be too early to judge that the market has turned around.

"It's a temporary stability. To be honest, I'm not quite sure how it will pan out in the long term but talking about a bounce is a little premature," said a physical iron ore trader in Singapore.

But in a sign that demand from China, the world's biggest iron ore consumer, has been tepid, price offers for imported ore were mostly steady on Thursday, after rising as much as $5 a tonne on Wednesday, according to Chinese consultancy Umetal.

"I think the Chinese buyers are still price sensitive but they're at a stage where they have to buy.

"But there's certainly still potential for the market to go lower," said the Singapore-based trader.

UBS on Thursday cut its realised price forecast for iron ore sold by BHP Billiton and Rio Tinto for the December quarter to $143 per tonne from $166, citing an industry shift to more spot pricing.

SHANGHAI REBAR SLIPS

One key factor for the slow recovery in iron ore prices is the continuing weakness in Chinese steel prices, which point to tepid demand in China, the world's biggest steel market.

The most-traded May 2012 rebar contract on the Shanghai Futures Exchange dropped for a fourth straight day on Thursday, down 0.4 percent at 4,027 yuan a tonne by the midday break.

The drop in Shanghai rebar prices "is likely to curtail any strong upward price momentum in iron ore markets in the immediate term," Commonwealth Bank of Australia said in a note.

While inquiries from Chinese mills to buy iron ore have increased, purchased volumes are "not that big," said a shipping manager for an iron ore trading firm in Shanghai, adding there is more interest in Australian cargoes which are deemed more attractively priced than Indian and Brazilian material.

BHP Billiton sold Australian 62-grade MAC iron ore fines at $117.50 a tonne on Wednesday, up from $116 on Monday, the manager said.

Prices of nearby iron ore swaps <0#SGXIOS:> rose, reflecting investor optimism of more price gains in the near term.

The Singapore Exchange-cleared November contract rose $2.33 to $128.50 a tonne, December added $1.34 to $130.67 and January also gained $1.34 to $131.17.

The volume of iron ore swaps cleared globally soared to an all-time high above 9 million tonnes in October, the Steel Index said, following a collapse in prices.

(sourced Reuters)