SINGAPORE, Nov 21: Iron ore hit two-week lows as softer Chinese steel prices trimmed demand for the raw material, although further losses in spot iron ore rates may be limited with Beijing’s steel production still in full swing.
Buying interest for iron ore has slowed after weeks of restocking by Chinese mills, but a further drop may also draw some buyers back into the market.
‘Mills are hesitating to book cargoes because of the recent drop in steel prices. We’re seeing slower purchasing activity,’ said an iron ore trader in Shanghai.
Benchmark iron ore with 62 percent iron content <.IO62-CNI=SI> fell 1.8 percent to $120.60 a tonne on Tuesday, its weakest since Nov. 5.
It was the biggest single-day drop for iron ore since Sept. 24, stalling an upturn in prices that gained for a sixth straight week last week.
Top miners Vale, Rio Tinto and BHP Billiton sold around 600,000 tonnes of iron ore cargoes at about $2 per tonne lower than previous deals on Tuesday, traders said.
Vale is offering two more cargoes on Wednesday, and traders expect Chinese mills to submit lower price bids.
Vale is selling 170,000 tonnes of 65-percent grade Brazilian Carajas iron ore fines and 40,000 tonnes of 65.5-percent grade Brazilian lump ore, traders said.
The Shanghai trader said he did not expect iron ore prices to drop below $115, a level last seen in mid-October.
‘Once the price drops to that level, mills would start buying again because the price fall can help margins and offset the weakness in steel,’ he said.
‘Steel production is still quite high and mills are running at full scale so they still need iron ore.’
DESTOCKING
A moderate revival in China’s steel demand and an end to a massive destocking of iron ore had helped the price of the steelmaking ingredient recover from three-year lows below $87 reached in early September.
But the upturn has largely been capped at around $120, with any recovery in Chinese steel demand remaining fragile.
Some analysts think prices could be trapped in narrow ranges going forward.
‘On balance, we feel the downward correction in 2012 has been overdone by the amount of destocking that hit the market,’ Sucden Financial said in a report.
‘We would look for iron ore prices to trade in the $100-$135 range in the months ahead.’
China’s average daily crude steel output rose 1.6 percent to 1.957 million tonnes in the first 10 days of November from the preceding 10-day period, industry data showed on Tuesday, as large mills lifted output following a recent rally in steel prices from September lows.
The most active rebar contract for May delivery on the Shanghai Futures Exchange gained half a percent to close at 3,570 yuan ($570) per tonne, after hitting a seven-week trough of 3,539 yuan on Tuesday.
(AGENCIES)
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