Iron Ore-China prices set for 20 pct decline in 2011

Fri Dec 30, 2011

* Prices down 20 pct in 2011 on low credit, economic uncertainty
* Indexes rise on Friday as traders, mills buy before year-end
* Shanghai rebar futures steady, down 15 pct from June peak

BEIJING, Dec 30 (Reuters) - Iron ore prices in China,the world's biggest market, are headed for a 20 percent decline
this year because of a government-mandated credit crunch as well as uncertainties about steel demand at home and overseas, and
few analysts see them recovering soon.Rising interest and reserve requirement rates over the year
made it difficult for traders and steel mills to find the funds required to make large purchases. The rapid drop in prices over
September and October also left many traders facing heavy losses.     

Spot iron ore prices inched up on Friday after a flurry of speculative purchases ahead of the new year. Industry
consultancy Umetal said spot offer prices for 61-percent Pilbara fines gained $1 to $136-139 per tonne, including cost and
freight, after staying flat for six consecutive days.On Thursday, traders in China purchased Pilbara fines at a
price of $137.8 per tonne, Malaysian lump at a price of $135 per tonne, 63-percent Brazilian fines at $155 per tonne and
Ukrainian 65-percent concentrate at $184 per tonne, Umetal said in its "Trading Signals" report on Friday.  

Major indexes all made gains on Thursday. Ore with 62 percent iron content stood at $138.4 a tonne on Thursday,
according to The Steel Index .IO62-CNI=SI, up 1.17 percent on the day but down 18.6 percent compared to Jan. 1.  
"There must have been a bit of buying going on before the new year break, and some must be hoping to profit from a jump in
prices in the new year," said a trader based in Shanghai."My feeling is that prices are back at their natural level
after falling so quickly (in October), so I'm not expecting any major adjustments in the coming few weeks, but there could be a
policy announcement to stimulate buying," he said. 

Iron ore prices reached a nadir of around $116 per tonne at the end of October but bounced back as end-users sought to
replenish their stockpiles. Mills now have enough to see them through the lunar new year holiday beginning on Jan. 22.   

According to a survey by industry consultancy Mysteel, 55 small- and medium-sized steel mills had an average of 39 days of
imported iron ore stocks by the end of last week, up from 31 days a month earlier.    
Traders are now looking to see what the new year will bring.While some expect the government to ease the tight credit
restrictions imposed in 2011, few envisage a return to the price levels seen earlier this year.  
"I'd be very surprised if prices return to $190 -- it was clear that those prices were unsustainable," said the Shanghai
trader. 

According to a Reuters poll, spot prices of 62 percent iron ore are expected to average $150 per tonne including cost and
freight in 2012. The most traded steel rebar futures contract in Shanghai was largely unchanged on Friday, ending at 4,210 yuan
($670) per tonne,up 9 yuan since the previous close and down 15 percent from its peak at the beginning of June. 
    
Shanghai rebar futures and iron ore indexes at 0700 GMT
                                                                
Contract                          Last    Change  Pct Change
SHANGHAI REBAR*                   4210      9.00        0.21
PLATTS 62 PCT INDEX                139      1.75        1.28
THE STEEL INDEX 62 PCT INDEX     138.4      1.60        1.17
METAL BULLETIN INDEX            138.09      1.32        0.97
                                                                
*In yuan/tonne
#Index in dollars/tonne, shows close for the previous trading
day ($1 = 6.3192 yuan) 

(sourced Reuters)