Iron Ore-Shanghai rebar hits 2-month top on firm demand view

Tue May 3, 2011 4:22am GMT

* Indian 63.5 pct ore seen rising above $190/T
* Chinese mills seen replenishing ore stockpiles
By Manolo Serapio Jr

SINGAPORE, May 3 (Reuters) - Chinese steel futures rose to more than two-month highs on Tuesday as market players, returning after a long weekend, were upbeat about the outlook for demand in top market China.

Spot iron ore prices also remained firm, with offers for high-grade Indian material expected to edge up above $190 a tonne this week as Chinese steel mills restock.

The most active October contract on the Shanghai Futures Exchange rose as much as 0.9 percent to hit an early peak of 4,960 yuan per tonne, matching its Feb. 24 peak. By the midday break, the contract was up 0.7 percent at 4,951 yuan.

China, along with many markets across the world, was shut on Monday for a public holiday.

"Steel demand in China is becoming bigger as more construction activity takes place so prices are rising," said an iron ore trader in Chinese eastern Shandong province.

Market players are also watching for possible production cutbacks by Chinese steel mills amid expected power curbs ahead of summer although some traders say the overall impact may be marginal.

China's average daily crude steel output has stayed at near record levels above 1.9 million tonnes since late February as steelmakers boosted output in anticipation of strong demand.

But with demand growth expected to slow to 2.6-4.6 percent per year from 2011 to 2015, China needs to curb excess capacity and output. [ID:nL3E7FT03U]

The rise in Chinese steel prices is supporting prices of iron ore, its main raw material.

Metal Bulletin's 62 percent iron ore index .IO62-CNO=MB, based on Chinese spot prices, rose 22 cents to $181.45 a tonne on Monday.

Those gains may continue with offers staying firm on Tuesday. Indian ore with 63.5 percent iron content was quoted at $188-$190 a tonne, including freight, said Chinese consultancy Umetal.

"I feel that the market is on an uptrend, but the increases won't be large," said an iron ore trader in Beijing. "Prices may rise this week as steel mills plan to rebuild inventories."

Tight supplies from India, the world's No. 3 iron ore exporter, during its monsoon season also bodes well for iron ore prices.

"I think 63.5/63 grade may be offered at above $190 this week and big mills may be willing to pay $187," said the Shandong-based trader. (Additional reporting by Ruby Lian in Shanghai; Editing by Sugita Katyal, sourced Thomson Reuters)