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Wednesday, February 8, 2012

Iron Ore-Upturn stalls on slow China steel market

Wed Feb 8, 2012

* Mills hesitating to buy more iron ore after recent rise
* BHP: China raw material demand growth may ease longer term
* Rio allots $3.4 bln to boost Australian ore mining

SINGAPORE, Feb 8 (Reuters) - Iron ore steadied on Wednesday after a recent spike in spot prices spurred caution among buyers who are worried a slow steel market in top consumer China cannot justify sustained gains in prices of the raw material. Offers for imported iron ore in China were unchanged from Tuesday, with Australian Pilbara fines quoted at $143-$145 per tonne, Newman fines at $146-$149 and Yandi fines at $131-$133, Chinese consultancy Umetal said.

"Steel mills are hesitant to buy more iron ore, given lacklustre steel demand and prices," said a purchasing manager for an iron ore trading firm in Shanghai. Some Chinese steel producers, especially the smaller mills, could be incurring losses with iron ore prices at current levels, which were similar to spot rates in mid-October when prices of some steel products, like billet, were around 200 yuan
($32) more than they are now, he said. Iron ore with 62 percent iron content .IO62-CNI=SI was
nearly flat at $144.70 a tonne on Tuesday, according to the Steel Index, after hitting a 2-1/2-month high of $144.80 on Monday.

The Chinese have made a slow return to the market after the week-long Lunar New Year break in late January, with a winter-halted construction sector, a heavy steel user, also feeding the sluggishness.
China's daily crude steel output fell 1.3 percent in the middle of January to 1.669 million tonnes, compared to the previous 10 days. Shanghai rebar futures have risen a modest 3 percent so far
this year, with the most-active May contract gaining 1.5 percent to close at 4,337 yuan a tonne, tracking firmer Chinese equities.

"Fundamentals are pointing towards a weak steel market in China, but there's a bit of tightness on supply of prompt cargoes from Australia and Brazil due to weather issues, so that's supporting iron ore," said a physical iron ore trader in Singapore. A seasonal cyclone period in Australia and heavy rains in
Brazil have disrupted some shipments from the world's two biggest iron ore exporters, although traders don't foresee a sustained boost to prices from those.

Iron ore shipments to China through Australia's Port Hedland, one of the world's biggest export terminals, fell 15 percent in January from December, according to data released by the port authority on Wednesday. Australian miner BHP Billiton warned on Wednesday the rate of China's demand growth for steelmaking ingredients could slow as "underlying economic growth rates revert to a more sustainable level."

BHP made the comment after reporting its first half-year profit fall in two years as iron ore, copper and coal prices dropped and costs rose. Still, BHP, the world's No. 3 iron ore miner, said demand
fundamentals for the raw material remained strong in the short to mid-term, a view evidently shared by second-ranked Rio Tinto, which set aside $3.4 billion to expand iron ore mining in Australia.

Shanghai rebar futures and iron ore indexes at 0403 GMT

Contract Last Change Pct Change
SHANGHAI REBAR* 4294 20.00 0.47
PLATTS 62 PCT INDEX 146.5 0.00 0.00
THE STEEL INDEX 62 PCT INDEX 144.7 -0.10 -0.07
METAL BULLETIN INDEX 144.48 0.26 0.18

*In yuan/tonne
#Index in dollars/tonne, show close for the previous trading day
($1=6.3049 Chinese yuan)

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