Iron Ore-Shanghai rebar hits 3-mth top on China data

Wednesday, 18 January 2012

China steel futures rose more than 1 percent to their highest in three months on Tuesday after data showed the world's second-largest economy grew at a faster pace than expected in the fourth quarter.
China's gross domestic product expanded an annual 8.9 percent in October-December, beating economists' forecasts for growth of 8.7 percent. But the pace was the weakest in 2-1/2 years and the economy looked headed for a sharper slowdown with export demand waning. The most-traded May rebar contract on the Shanghai Futures Exchange hit a high of 4,315 yuan a tonne, its loftiest since Oct. 17, tracking gains in other Shanghai-traded commodities. It closed 1.3 percent higher at 4,295 yuan.
With fourth-quarter GDP growth ahead of market expectations, it may be unlikely for China to aggressively ease monetary policy with its economy clearly staying brisk.

"Overall growth momentum continues to be strong. The slowdown is not scary, so we are not going to get massive policy easing," said Kevin Lai, economist at Daiwa in Hong Kong.Lai does not expect China to cut interest rates, but sees four more reductions in banks' reserve requirement ratio of 50 basis points each.Gains in steel prices should spur demand for iron ore although buying interest in the raw material may remain limited with trades winding down ahead of next week's Lunar New Year holiday, putting downward pressure on spot prices.

Iron ore with 62 percent iron content .IO62-CNI=SI fell 1.2 percent to $140.50 a tonne, cost and freight delivered to China, on Monday, according to the Steel Index.

FLAT RIO OUTPUT
"There's very little trading going on. A lot of our Chinese clients are already in holiday mode," said an iron ore trader in Singapore. But if Chinese steel prices extend gains after the week-long holiday, appetite for iron ore should pick up.

"Without any improvement in steel prices it'll be hard to see Chinese mills paying any more for iron ore, so it depends on the extent of the seasonal rebound in the steel market and Chinese macro policy," said a Shanghai-based trader. Iron ore prices usually move higher after the Chinese New Year break, and traders expect this year's bounce to be supported by expectations of further monetary policy relaxation in China where easing inflation puts authorities' focus back on boosting economic growth.

Australian miner Fortescue Metals said on Tuesday demand for its iron ore in China remained strong, encouraging it to expand output. Fortescue said its October-December iron ore shipments rose 19 percent from the previous quarter to 14.8 million tonnes.But bigger rival Rio Tinto reported a near-flat production growth of iron ore for the fourth quarter, weaker than some market expectations amid concerns that Chinese demand is softening.

Rio Tinto, the world's second biggest iron ore producer after Brazil's Vale, posted a 3 percent rise in output between the third and fourth quarters of 2011, down from growth of nearly double that at the end of 2010.China's crude steel output rose at a slower pace in 2011 as tighter credit dented consumption in the world's top steel market and growth is likely to even weaken this year with no clear outlook on demand.
The country's crude steel production rose 8.9 percent to 683.27 million tonnes last year, the National Bureau of Statistics said on Tuesday. While output was an all-time high, the increase was slower than the 9.3 percent rise in 2010.

sourced Reuters