Iron Ore-Prices rise as Chinese steel mills restock

Wed Jun 8, 2011 7:52am GMT

* Forward iron ore swaps extend gains
* Price rise seen short-lived on China power curbs, tightening
* China daily steel output drops in late May

By Manolo Serapio Jr

SINGAPORE, June 8 (Reuters) - Spot iron ore prices rose on Wednesday, as Chinese steelmakers replenished inventories that have run low after a record pace of steel production until mid-May.

A drop in spot prices to two-month lows last week encouraged mills in China, the world's top iron ore consumer, to restock.

"We expect the restocking to continue for the next two weeks. Iron ore prices are low, inventories are low and steel prices are good," said an iron ore trader in Rizhao city in China's Shandong province.

Indian ore with 63.5 percent iron content was quoted at $179-$181 a tonne, including freight, up from $175-$178 on Tuesday, traders said, and market indications are for prices to be firm to stable in the next few weeks.

Global miner BHP Billiton sold 80,000 tonnes of 61.2 percent-grade iron ore fines at $171 a tonne and another 90,000 tonnes of 57.7 percent grade at $158 a tonne at a tender on Tuesday, traders said.

The price for the higher-grade fines was in line with spot market rates, while the lower-grade ore was $3-$5 higher than readily available stocks at Chinese ports, traders said.

"I think the Chinese will not be restocking too much iron ore because of the power shortages which may hit steel production and the tighter monetary policy," said a trader in Shenzhen.

"Also, steel demand usually slows during the summer when construction mostly stops because it becomes too hot to build anything."

China is struggling with its worst power shortages in seven years and has raised electricity prices for some users for the first time since 2009.

China's daily crude steel output in the last 11 days of May stood at 1.915 million tonnes, down 3.5 percent compared with the previous 10 days when daily production rose to a record of 1.984 million tonnes as mills maximised output ahead of a widely anticipated power rationing campaign.

Shanghai rebar futures closed up 0.1 percent at 4,869 yuan per tonne on Wednesday, rebounding from a low of 4,830 yuan hit earlier, its weakest in nearly two weeks.

Iron ore indexes, based on Chinese spot prices and which global miners use in setting quarterly contracts, rose on Tuesday after losing around 6 percent last month.

Platts 62 percent benchmark IODBZ00-PLT rose $1.00 to $172.75 a tonne and a similar index by Metal Bulletin .IO62-CNO=MB gained 88 cents to $171.18.

The Steel Index's 62 percent gauge .IO62-CNI=SI edged up 50 cents to $170.70.

"Despite the fact that prices have been coming down for a while now, we shouldn't forget that prices are still high; the spot price has not been below $160 per tonne for more than six months and it is unlikely to do so in the short-to-medium term at least," said Christopher Ellis, index analyst with Metal Bulletin in London.

Forward swaps extended gains, suggesting investors are looking to more gains in spot prices.

The Singapore Exchange-cleared June contract rose 75 cents to $173.75 a tonne, July gained $1.95 to $173.12 and August climbed $1.87 to $171.87.

Tight supply from India, the world's No. 3 iron ore supplier, is also expected to support prices, with shipments seen falling through the monsoon season that lasts till September.

Iron ore exports from India's Mormugao port fell 11.8 percent to 8.2 million tonnes in April-May largely due to a sharp rise in export taxes and softer demand from China, a trend likely to continue in coming months when monsoon rains hit shipments. (Editing by Himani Sarkar, sourced Thomson Reuters)