Iron Ore-Prices extend gains as restocking continues

Fri Apr 1, 2011 3:13am GMT

BEIJING, April 1 (Reuters) - Spot iron ore prices extended their recovery on Friday, inching towards $180 per tonne as Chinese buyers continued to replenish their stocks, but traders were still bracing themselves for another slump.

A commodities broker based in Hong Kong said most in the market still believed current prices were unsustainable, even after the pick-up in trade this week.

"We may have seen a jump this week but generally people are in the market for one or two shipments and that's it -- they will buy what they need but stockpiles are still pretty high," the broker said.

Industry consultancy Mysteel's 63.5-63 percent index for Indian fines on the Chinese market reached $179 per tonne on Friday, up $2 on the day and $8 since last week.

Platts 62 percent iron ore index IODBZ00-PLT ended Thursday unchanged at $175 a tonne after jumping $5.50 on Wednesday.

Metal Bulletin's 62 percent gauge .IO62-CNO=MB reached $172.87, up $3.16, while the Steel Index .IO62-CNI=SI saw a $1.90 increase to $172.40.

The broker said the relatively large increases might have been down to a decision by Rio Tinto and BHP Billiton to auction off a number of cargoes this week.

"They have each got a dozen customers and they hold internal auctions of cargoes -- these didn't previously go into the index but now they do, and they might have a substantial impact," he said.

Three Chinese traders contacted by Reuters on Friday said the consensus in the market was that prices will fall to around $160-165 in the coming month.

As the second quarter begins, the rationale behind the three-month pricing system used by the big iron ore suppliers could be further undermined, the broker suggested.

According to the new rules, April-June prices will be based on an average of index prices from December to February. Despite a slump in spot iron and steel prices in March, mills are now facing record-high contract iron ore costs.

Reuters calculations suggest that three-month contract prices could rise 20 percent to almost $180 per tonne beginning on April 1. [ID:nL3E7E107E]

"The buyer has a choice and he could say that he doesn't want the benchmark but wants the spot price instead -- and that could force (the spot price) up," said the broker. (Reporting by David Stanway; Editing by Ken Wills, sourced Reuters)

Tags :BHP Billiton, Chinese iron ore traders, raw material, steel mills, steelmaking, spot prices

Iron Ore-Spot prices tick up on slow Chinese buying

Fri Mar 25, 2011 4:25am GMT

* Chinese mills restock on iron ore at slow pace
* Shanghai rebar futures steady
* BHP details $9.5 bln iron ore, coal expansion plan

By Manolo Serapio Jr

SINGAPORE, March 25 (Reuters) - Spot iron ore prices edged up on Friday as some Chinese mills restocked the steelmaking ingredient, but purchases were far from brisk given lacklustre steel prices.

Steelmakers in China, the world's biggest steel market, had slowed iron ore purchases after aggressive stockpiling early this year lifted prices to record highs in mid-February.

Iron ore prices have lost around 13 percent since hitting those peaks last month.

"Chinese mills have kept production at a high level and they've run down on iron ore inventories quite dramatically to the point where they now have to come back to the market and buy," said Graeme Train, commodity analyst at Macquarie Securities in Shanghai.

"The problem is that mills don't want to commit to a large amount of tonnage when steel prices are not performing very well, so it seems like you've hit a bit of stabilisation and it's a bit tricky for prices to fall because mills have to buy."

The most active October contract on the Shanghai Futures Exchange was steady at 4,716 yuan a tonne by the midday break.

The contract is down 0.8 percent on week, having fallen to four-month lows on Tuesday.

Offers for Indian ore with 63.5 percent iron content improved to $171-$173 a tonne, including freight, on Friday, said Chinese consultancy Mysteel, from $170-$172 for most of this week.

The Steel Index's 62 percent iron ore benchmark .IO62-CNI=SI rose 0.5 percent to $166.40 a tonne on Thursday, while other indexes were steady.

Platts 62 percent index IODBZ00-PLT stood at $168.50, unchanged for a fifth straight session, and Metal Bulletin's 62 percent index .IO62-CNO=MB was nearly flat at $164.92.

STEEL DEMAND NOT COLLAPSING

Iron ore prices are likely to stabilise at current levels unless Chinese steel demand picks up strongly, analysts said, while market players assess the impact on steel demand from a reconstruction in disaster-hit Japan.

Japan's steel mills were largely unscathed after the ferocious March 11 earthquake and tsunami and production disruptions would likely mean a total volume loss of 10 million tonnes for 2011, said Colin Liang, analyst at Bank of America Merrill Lynch.

That represents 9 percent of the 109.6 million tonnes of crude steel Japan made last year. Japan is the world's second-largest steel producer after China.

"Iron ore prices should be going up. Steel demand seems fine, it's not exciting but not collapsing either and production is at a reasonably high level," said Macquarie's Train.

"But because credit is a bit of an issue, people are not forward ordering a lot of material, they're not willing to build up their own inventory and that's taken some of the urgency out of purchasing and as a result you're just not seeing any real movement in prices at the moment," he added.

China has been tightening monetary policy and restricting credit to cool growth.

Further gains in iron ore forward swaps <0#sgxios:> suggested some players remain upbeat, with all 24 contracts through February 2013 edging up, and big gains seen for the nearby second-quarter period.

In industry news, BHP Billiton , the world's No. 3 iron ore producer, said it has approved $9.5 billion of capital investment to expand its Australian iron ore and coal mining operations.

"The big risk that hangs over the iron ore market is when you look at 2013, 2014 and all of the supply that's expected to come online following a lot of these capital expenditures," said Ben Westmore, commodity economist at National Australia Bank.

Spot iron ore prices, which gained more than 40 percent in 2010, are likely to remain high until new supply comes in.

Global seaborne supply of iron ore has been increasing by 20 million to 40 million tonnes in recent years, but production expansion plans by global miners could boost annual supply by around 100 million tonnes from late 2012 to early 2013, analysts have said.(sourced Reuters)

Tags : raw material, steel plants,