December 25, 2015 / 3:41 AM / 2 years ago

Iron ore heads for second weekly gain but caution prevails

By A. Ananthalakshmi
    SINGAPORE, Dec 25 (Reuters) - Iron ore fell on Friday but
was poised for a second straight weekly gain after finding
support from signs of near-term supply tightness in top consumer
China, but the long-term fundamentals remained weakened by a
global glut and shrinking Chinese demand.
    Shanghai steel futures were on track for a third straight
weekly gain, their longest winning streak on a weekly basis in a
year. 
    "In the last two weeks, iron ore futures found some support
from the improvement in the rebar futures. But during this whole
period, there is actually no improvement in underlying demand,"
said Wang Di, an analyst with CRU in Beijing.
    "I don't think the price increase will be sustainable
because there is no support from demand," Wang said, adding that
there will be no significant restocking in China ahead of the
lunar new year holiday in February.
    The most-active May iron ore contract on the Dalian
Commodity Exchange had eased 0.3 percent to 304.5 yuan
($47.05) a tonne as of 0309 GMT. It was headed for a 2.5 percent
weekly gain.   
    The most-traded May rebar contract on the Shanghai Futures
Exchange rose 0.2 percent to 1,730 yuan ($267.33) a
tonne and is up 2 percent for the week, after hitting a
five-week high of 1,764 yuan earlier in the week. The last time
steel futures gained for three straight weeks was in
November-December 2014.
    Iron ore for immediate delivery to China's Tianjin port
.IO62-CNI=SI was priced at $40.20 a tonne on Thursday,
unchanged from the previous two sessions, according to The Steel
Index.
    The spot benchmark has recovered nearly 9 percent since
tumbling to $37 on Dec. 11, its lowest since at least 2008. But
for the year, it was still down 44 percent.
    Iron ore could fall below $30 a tonne in the next few
months, forcing more high-cost suppliers out of business, a
Reuters poll showed last week. 
    Some of the year-end price reprieve has come from tighter
supplies at top consumer China as steel mills cut output on weak
demand. The approach of the lunar new year holiday will also
prompt some companies to lower production.
    That, however, would still not be enough to offset the price
pressure from excess global supplies of iron ore while demand is
in a slump.
    China's steel demand continued to shrink this year after
falling in 2014 for the first time in more than three decades.
More than 50 million tonnes of steel capacity have shut in China
this year, according to CRU.

  Rebar and iron ore prices at 0309 GMT
                                                                                   
  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY6                   1730     +3.00        +0.17
  DALIAN IRON ORE DCE DCIO MAY6    304.5     -1.00        -0.33
  THE STEEL INDEX 62 PCT INDEX      40.2     +0.00        +0.00
  METAL BULLETIN INDEX                41     +0.18        +0.44
                                                                                   
                                                                                   
  Dalian iron ore and Shanghai rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.4713 Chinese yuan renminbi)

 (Reporting by A. Ananthalakshmi; Editing by Edmund Klamann)

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