Iron Ore-Shanghai rebar hits contract low, ore extends losses

Wed Oct 12, 2011

* China mills seen cutting steel production

* Baosteel says to keep prices unchanged

By Manolo Serapio Jr

SINGAPORE, Oct 12 (Reuters) - Benchmark China steel futures fell to their lowest ever on Wednesday as weaker demand put further pressure on prices and will likely curb output in the world's top consumer and producer.

Baoshan Iron and Steel , China's biggest listed steelmaker, said it will keep prices of its main products unchanged next month after raising them in September and October, reflecting caution amid slower domestic appetite.

The most briskly traded January rebar contract on the Shanghai Futures Exchange fell as low as 4,255 yuan a tonne, the weakest level for the contract. By 0307 GMT, it was down 0.2 percent at 4,315 yuan.

Rebar, used in construction, dropped more than 11 percent in September, its biggest monthly loss ever, as tighter credit in China thinned demand for steel and a construction boom that fuelled a record production pace earlier in the year lost steam.

"We are going to see some production cuts definitely with steel prices at these levels. Some mills, especially the marginal producers, are not making money anymore," said Henry Liu, regional head of commodity research at Mirae Asset Securities in Hong Kong.

"Sentiment is quite bearish. We have not yet seen the bottom of the steel market."

China's average daily crude steel output declined 2.3 percent to 1.919 million tonnes in mid-September from the previous 10 days, industry data showed last month.

Prices of iron ore, the key component in making steel, may continue to fall if No. 1 buyer China cuts steel output.

Index-based spot iron ore prices, based on Chinese transactions and used by global miners in fixing supply contracts, slid on Tuesday to their lowest since March.

Iron ore with 62 percent iron content fell 1.3 percent to $164.40 a tonne, according to the Steel Index .IO62-CNI=SI and was down 1 percent at $165.25 based on Platts IODBZ00-PLT.

Metal Bulletin's similar gauge .IO62-CNO=MB dropped 1.3 percent to $165.26.

Prices of forward swaps <0#SGXIOS:> also extended losses, with the Singapore Exchange-cleared October contract down $2.58 to $161.67 a tonne and November falling more than $4 to $154.17, as buyers bet on a further decline in spot rates.

"I'm not confident about the market. There will be much less demand in winter because most construction activities will stop," said a Shanghai-based iron ore trader.

But the trader said cuts in China's steel output, if done aggressively, may allow prices to recover as mills rely on product inventories, tightening supply.

"That can help balance the market and boost demand again for iron ore," he said."

(sourced Reuters)

Chinese plan for steel super firms seen floundering

Friday, 18 Feb 2011

Reuters reported that China is likely to fail in its drive for state owned steel giants to swallow small mills and create iron ore super buyers to wring better prices from leading sellers Vale, Rio Tinto and BHP Billiton as failure to get the three major iron ore suppliers to agree to price cuts in 2009 was blamed on small mills breaking ranks.

China latest five year plan aims to fix by bringing more than 60% of national steel capacity under the control of its top ten producers by 2015.

Cutting total steel capacity in China, variously estimated at 720 million to 750 million tonnes a year roughly more than 100 million tonnes over 2010 output of 626.6 million tonnes, by forcing mergers and shutdowns may not work as well as market forces.

China industry ministry last month said the top ten steel mills produced 48.1% of national output last year up by 3.6 percentage points from 2009 and close to its original target of 50%.

But analysts say that up to now, many of the consolidations have been cosmetic gestures to appease regulators.

Mr Henry Liu head of commodity research at Mirae Assets Securities in Hong Kong said "The government led administrative push will not work and the best way is to allow the market to play a major role in mergers and acquisitions"

Mr Du Hui with China Qilu Securities said "The majority of mergers and acquisitions have been sought to create a simple sum of output and haven't met the real target of regrouping assets and jointly utilizing resources."

(sourced:Reuters)
Tags: Chinese plan for steel super firms, BHP Billiton, Rio Tinto, iron ore suppliers, Vale, iron ore suppliers, small steel mills, China steel industry,China Qilu Securities, Mirae Assets Securities,Hong Kong