Shanghai steel hits 2-month low, slow demand counters China data

Thu Nov 22, 2012 9:01am IST

* Benchmark iron ore steady at two-week lows
    * China flash PMI at 13-month high, lifts recovery hopes

    By Manolo Serapio Jr
    SINGAPORE, Nov 22 (Reuters) - China steel futures slipped to
their lowest since late September as slower demand during the
winter season in the world's top steel consumer offset optimism
from data showing a revival in the economy after a seven-quarter
slowdown.
    China's manufacturing sector expanded in November for the
first time in 13 months, with the HSBC Flash Manufacturing
Purchasing Managers Index hitting a 13-month high of 50.4.
 
    The data is the latest evidence that the world's No. 2
economy is gaining traction with solid credit growth and firmer
exports and industrial output in the previous month.
    "China has passed the worst time and it could only get
better. But how much better it could be depends on government
spending and other factors," said Henry Liu, head of commodity
research at Mirae Asset Securities.
    "For steel, we are seeing end-user demand improvement but
this could be a very slow and gradual improvement because right
now it's winter season," said Liu, adding demand may only
strengthen after the Lunar New Year in February.
    The most traded rebar contract for May delivery on the
Shanghai Futures Exchange touched a session low of
3,533 yuan ($570) a tonne, its weakest since Sept. 26. It was
down 0.3 percent at 3,558 yuan by 0307 GMT.
    China's steel demand and output usually slip during winter
when construction activity slows down, cutting the need for raw
material iron ore.
    But so far, steel output remains strong, with the average
daily crude steel production rising 1.6 percent to 1.957 million
tonnes in the first 10 days of November. [ID:nL4N0900BU
    "According to our channel check, some Chinese producers
expect steel prices to fall due to overproduction in winter
months," Deutsche Bank said in a note.
    "We expect that Chinese steel production could remain strong
in November and gradually slow down in December."
    Price offers for imported iron ore cargoes in China were
steady on Thursday, after benchmark spot rates hit two-week lows
earlier in the week as appetite weakened in step with lower
steel prices.
    Iron ore with 62 percent iron content .IO62-CNI=SI was
unchanged at $120.60 per tonne on Wednesday, according to data
provider Steel Index.
    "There are still some inquiries from mills for cargoes, but
the interest is slowly falling," said an iron ore trader in
Shanghai, who expects iron ore prices to drop further to $118.  
           
  Shanghai rebar futures and iron ore indexes at 0307 GMT
                                                                                                                    
  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY3                   3559    -11.00        -0.31
  PLATTS 62 PCT INDEX                121     -0.50        -0.41
  THE STEEL INDEX 62 PCT INDEX     120.6     +0.00        +0.00
  METAL BULLETIN INDEX            120.44     -0.38        -0.31
                                                                                                                    
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.2302 Chinese yuan)

 (Editing by Himani Sarkar)
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