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Tuesday, December 13, 2011

Iron Ore-Spot prices seen edging up, but gains capped

Tuesday, 13 December 2011

Spot iron ore prices are expected to tick higher this week as Chinese steel mills replenish inventories ahead of the Lunar New Year in late January, although subdued steel prices could limit any buying interest. Iron ore with 62 percent iron content was nearly flat at $139.50 a tonne on Friday, cost and freight delivered to China, according to Steel Index.
The raw material gained half a percent for all of last week, reflecting slow demand from top importer China where steady steel prices point to thin demand.

"We expect the Chinese mills to come in and buy to restock as we approach the Chinese New Year. If the mills want to go on holidays they're going to have to do all their buying in December," said an iron ore physical trader in Singapore. The 2012 Lunar New Year holidays start from Jan. 22, earlier than in 2011 when they were in early February.

Chinese steel mills normally heavily restock on iron ore ahead of the Lunar New Year, pushing spot prices higher. Prices hit a record of above $190 a tonne in February, helped by the buying momentum built ahead of the festival. But traders said they don't expect the Chinese to be as aggressive in replenishing inventories this time given sluggish steel demand.
"We're capped on the upside, the price will probably be capped at $150," said the Singapore trader, referring to the 62-percent iron ore reference price by Steel Index.

In a sign that Chinese steel demand remains thin, Baoshan Iron and Steel said it plans to keep hot-rolled coil prices unchanged for January bookings, and increase cold-rolled coil by 100 yuan ($16) per tonne, a hike that analysts deem small.
Sellers of imported iron ore in China kept their offer prices unchanged on Monday, amid hopes buyers would return to the market. Australian Pilbara iron ore fines were quoted at $139-$141 a tonne, C&F, and Newman fines were offered at $141-$143, said Chinese consultancy Umetal. Indian 63.5/63-grade fines were quoted at $149-$151 a tonne.

The most-traded May rebar contract on the Shanghai Futures Exchange closed nearly flat at 4,168 yuan, after rising just 0.1 percent last week.
Steel prices in China, the world's largest consumer and producer, are likely to hit bottom in January or February, Mirae Asset Securities analysts said in a note.
"But given the current low steel inventory level, we may see a small and quick rally, at most, in December. In addition, a rally should follow in the second quarter after the early Chinese New Year when steel demand recovers seasonally in March or April," they said.
Elsewhere, Vale may start operating its iron ore transshipment centre in the Philippines early next year, two years ahead of a similar facility in Malaysia, as the world's top iron ore miner moves closer to its biggest market, China.

sourced Reuters

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