* Monsoon rains, high freight rates curbing Indian supply
* Chinese mills replenishing ore inventories
* Iron ore indexes rise for second day
By Manolo Serapio Jr
SINGAPORE, June 9 (Reuters) - Spot iron ore prices edged up on Thursday, extending recent gains, as Chinese steel mills continued to restock and with high-grade Indian material in tight supply as monsoon rains hamper shipments.
"We are getting more inquiries from mills who have low inventory levels of iron ore. There is also a shortage of high-grade material at the moment because supply from the Indian side is still tight," said a shipping manager for an iron ore trading firm in Shanghai.
Indian ore with 63.5 percent iron content was offered at $177-$179 a tonne, including freight, on Thursday, up from $175-$178 the previous day, said Chinese consultancy Umetal.
Australian 62 percent Newman fines were quoted at $175-$177 a tonne, also up from the previous day's $174-$176, Umetal said.
Apart from monsoon rains which make it difficult for iron ore to be shipped from Indian ports, other logistical problems have slowed movement of iron ore from the world's No. 3 supplier of the steelmaking ingredient.
"Railway freight rates are too high so exporters are preferring to transport their cargo via road which has limitations. Also, Karnataka is yet to start dispatches," said Dhruv Goel, managing partner at iron ore trader Steelmint in India's eastern Orissa state.
Indian Railways had hiked iron ore freight rates at least twice this year as prices of the raw material soared due to booming demand from China. It also imposed a "busy season" charge on iron ore shipments from April 1 to June 30 and from Oct. 1 to March 31. [ID:nL3E7EU0UD]
And despite lifting a ban on iron ore shipments in April, India's Karnataka has yet to resume exports given the slow issuance of permits. [ID:nL3E7H619E]
Iron ore indexes, based on Chinese spot prices and which global miners use in setting quarterly contracts, rose for a second day on Wednesday after losing around 6 percent last month.
The Steel Index's 62 percent benchmark .IO62-CNI=SI rose a dollar to $171.70 and Platts own 62 percent index IODBZ00-PLT also climbed by a dollar to $173.75.
Metal Bulletin's similar gauge .IO62-CNO=MB ticked up 6 cents to $171.24.
Gains in iron ore prices may be short-lived if China's power shortages worsen such that steel mills may have to curb output, analysts said.
"It's not yet widespread but the risks are there going forward. If some of the small to medium-sized steel mills facing power supply problems cut their steel production that will affect iron ore demand," said Judy Zhu, commodity analyst at Standard Chartered Bank in Shanghai.
"But even if we see spot prices fall from current levels because of weaker demand as we enter the third quarter, the traditional off-peak season, the downside risk is very limited because supply is still very tight."
Prices of nearby forward swaps retreated on Wednesday after recent steep gains, although losses were modest.
The Singapore Exchange-cleared June contract dropped 92 cents to $172.83 a tonne, July slipped 70 cents to $172.42 and August was off 4 cents at $171.83.
(Reporting by Manolo Serapio Jr.; Editing by Ed Lane, sourced Thomson Reuters)
"We are getting more inquiries from mills who have low inventory levels of iron ore. There is also a shortage of high-grade material at the moment because supply from the Indian side is still tight," said a shipping manager for an iron ore trading firm in Shanghai.
Indian ore with 63.5 percent iron content was offered at $177-$179 a tonne, including freight, on Thursday, up from $175-$178 the previous day, said Chinese consultancy Umetal.
Australian 62 percent Newman fines were quoted at $175-$177 a tonne, also up from the previous day's $174-$176, Umetal said.
Apart from monsoon rains which make it difficult for iron ore to be shipped from Indian ports, other logistical problems have slowed movement of iron ore from the world's No. 3 supplier of the steelmaking ingredient.
"Railway freight rates are too high so exporters are preferring to transport their cargo via road which has limitations. Also, Karnataka is yet to start dispatches," said Dhruv Goel, managing partner at iron ore trader Steelmint in India's eastern Orissa state.
Indian Railways had hiked iron ore freight rates at least twice this year as prices of the raw material soared due to booming demand from China. It also imposed a "busy season" charge on iron ore shipments from April 1 to June 30 and from Oct. 1 to March 31. [ID:nL3E7EU0UD]
And despite lifting a ban on iron ore shipments in April, India's Karnataka has yet to resume exports given the slow issuance of permits. [ID:nL3E7H619E]
Iron ore indexes, based on Chinese spot prices and which global miners use in setting quarterly contracts, rose for a second day on Wednesday after losing around 6 percent last month.
The Steel Index's 62 percent benchmark .IO62-CNI=SI rose a dollar to $171.70 and Platts own 62 percent index IODBZ00-PLT also climbed by a dollar to $173.75.
Metal Bulletin's similar gauge .IO62-CNO=MB ticked up 6 cents to $171.24.
Gains in iron ore prices may be short-lived if China's power shortages worsen such that steel mills may have to curb output, analysts said.
"It's not yet widespread but the risks are there going forward. If some of the small to medium-sized steel mills facing power supply problems cut their steel production that will affect iron ore demand," said Judy Zhu, commodity analyst at Standard Chartered Bank in Shanghai.
"But even if we see spot prices fall from current levels because of weaker demand as we enter the third quarter, the traditional off-peak season, the downside risk is very limited because supply is still very tight."
Prices of nearby forward swaps retreated on Wednesday after recent steep gains, although losses were modest.
The Singapore Exchange-cleared June contract dropped 92 cents to $172.83 a tonne, July slipped 70 cents to $172.42 and August was off 4 cents at $171.83.
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