September 17, 2012 / 7:43 AM / 5 years ago

UPDATE 1-Shanghai rebar dips, iron ore may ease on China steel demand view

* China daily steel output up 1.2 pct early Sept-CISA
    * China steel consumption won't peak until 2025-StanChart

 (Adds Fortescue, updates rebar price)
    By Manolo Serapio Jr
    SINGAPORE, Sept 17 (Reuters) - Shanghai steel futures
slipped on Monday after rising to near one-month highs in the
previous session, as investors' focus shifted back to sluggish
Chinese demand after gains fed by the Federal Reserve's move
last week to bolster the U.S. economy.
    A drop in Shanghai rebar futures could fuel a retreat in
iron ore prices, which jumped almost 6 percent on Friday to
above $101 a tonne.
    The most-traded rebar contract for January delivery on the
Shanghai Futures Exchange dropped 0.2 percent to close
at 3,554 yuan ($560) a tonne. Used in construction, rebar surged
nearly 5 percent to a session high of 3,623 yuan on Friday, its
loftiest since Aug. 20.
    Rebar futures ended last week up 4.5 percent, their biggest
gain since November 2010, in a rally traders thought was mainly
driven by sentiment rather than signs of a pickup in Chinese
demand.
    "I don't understand why steel and iron ore prices jumped so
much when nothing has changed fundamentally. China's steel
demand is still weak so how can buyers accept these kinds of
prices?" an iron ore trader in Shanghai said.
    "We have to see a recovery in real steel demand to sustain
any price rally."
    Benchmark iron ore with 62 percent iron content
.IO62-NI=SI climbed 5.7 percent to $101.60 a tonne on Friday,
according to data provider Steel Index.
    The trader said his company only managed to sell
25,000-30,000 tonnes of iron ore last week, leaving the firm
with about 250,000 tonnes of stockpiles at Chinese ports that it
has been trying to sell for months.
    "We're not buying right now because we don't want to chase
prices higher when they could fall sharply so easily at this
time, when the outlook for steel demand remains uncertain," he
said.
    
    STRUCTURAL CHANGE
    Despite Friday's jump, iron ore is still a quarter down from
levels in early July. Prices fell to a near three-year low of
$86.70 on Sept. 5, as poor steel demand pushed Chinese buyers
away from the market.
    The collapse in iron ore prices to nearly half over the past
year has forced world No. 4 iron ore miner Fortescue Metals
Group to restructure an $11 billion debt load, details
of which it is expected to announce on Tuesday. 
      
    Sellers, however, on Monday still pushed up price offers for
iron ore shipments, hoping to stretch out Friday's gains. Offers
for imported cargoes in China increased by $7 a tonne, said
Beijing-based consultancy Umetal.
    Weak Chinese demand for steel is aggravated by excess supply
as mills continue to maximise production.
    China's daily crude steel output rose 1.2 percent to 1.895
million tonnes in the first 10 days of September from the
preceding 11-day period, industry data showed on Monday.
 
    "The sharp rebound in steel prices over the past week will
spur steel output to rise, which will be not favourable for the
steel market in the near future," said Hu Yanping, an analyst
with industry consultancy Custeel.com.
    Longer term, Standard Chartered believes China's steel
consumption will continue to grow until 2025.
    "China's steel industry will undergo structural change over
the next decade - demand from the manufacturing sector is likely
to increase rapidly, taking a share from the construction
sector, the main driver of steel demand in the last decade,"
StanChart analysts said in a report.
    Similarly, China's iron ore imports are unlikely to peak
until 2025, as declining domestic ore grades will lead to a
higher dependence on imports, providing long-term support to
prices, the bank said, forecasting iron ore prices at $122 by
2026 from an estimated $127 this year.
    
  Shanghai rebar futures and iron ore indexes at 0701 GMT
                                                                                                          
  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN3                   3554     -7.00        -0.20
  PLATTS 62 PCT INDEX             105.25     +7.50        +7.67
  THE STEEL INDEX 62 PCT INDEX     101.6     +5.50        +5.72
  METAL BULLETIN INDEX            104.54     +6.65        +6.79
                                                                                                          
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.3145 Chinese yuan)

 (Additional reporting by Ruby Lian in Shanghai; Editing by
Miral Fahmy and Himani Sarkar)
 (manolo.serapio@thomsonreuters.com; +65 6870 3884; Reuters
Messaging: manolo.serapio.reuters.com@reuters.net)

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