January 22, 2013 / 8:09 AM / 5 years ago

UPDATE 1-Iron ore gains, slow China demand may cap rise

* Iron ore rise follows drop of over 8 pct in past 2 weeks
    * Australian ports to close on cyclone risk
    * Baosteel hikes prices for 4th straight month

 (Adds other Australian ports' closure, trader comment, updates
rebar price)
    By Manolo Serapio Jr
    SINGAPORE, Jan 22 (Reuters) - Spot iron ore prices rose
after a fall of more than 8 percent over the past two weeks
tempted some buyers in top importer China, but some traders
doubt any significant rebound is sustainable given ample stocks
of iron ore at most mills.
    A tropical storm that shut huge ports in Australia used by
miners Rio Tinto  and BHP Billiton 
, which could cut supplies from the world's biggest iron
ore exporter, is also likely to support prices. 
    Price offers for imported cargoes in China rose by $2 per
tonne on Tuesday, according to Chinese consultancy Umetal, as
sellers braced for a return in demand after prices came off
15-month highs reached in early January.
    Iron ore with 62 percent iron content .IO62-CNI=SI, the
industry benchmark, gained 0.6 percent to $145.90 a tonne on
Monday, based on data from Steel Index. 
    The few cargoes sold on the spot market were done at higher
prices, but some traders were unsure if the upturn would
continue.
    "With steel mills making a loss at current iron ore prices,
I don't think the jump is sustainable," said an iron ore trader
in Shanghai.
    With the price of rebar, a steel product used in
construction, at around 4,000 yuan ($640) per tonne, mills can
only make money by buying Australian Pilbara iron ore fines at
$130 a tonne, the trader said.
    A cargo of 61-percent grade Pilbara iron ore fines was sold
on the trading platform run by China Beijing International
Mining Exchange on Monday at $146 a tonne.
    Chinese steel prices have not rallied as much as iron ore.
While iron ore surged more than 80 percent from September to hit
this year's peak of $158.50 on Jan. 8, Shanghai rebar futures
only rose a quarter to a six-month peak of 4,047 yuan two weeks
ago.
    The most traded rebar contract for May delivery on the
Shanghai Futures Exchange closed up 0.6 percent at
3,987 yuan.
    The outlook for steel demand could improve going forward as
the Chinese economy mends. 
    China's Baoshan Iron & Steel, the country's
biggest listed steelmaker, lifted prices for a fourth straight
month in March when construction and manufacturing activity
usually picks up pace after the Lunar New Year in February.
      
        
    NOT ENOUGH LOGIC   
    "I don't think there's enough logic for iron ore prices to
go up right now, but iron ore has moved against logic to a great
extent in December and early this month, so it's hard to say,"
said a trader in Singapore.
    The trader said the shutdown of Australian ports may help
prices stabilise between $145 and $150, but is unlikely to spur
a sharp spike if the closure is temporary. 
    Port Hedland, Dampier and Cape Lambert ports were in the
process of closing on Tuesday as the tropical storm gathered
strength in the Indian Ocean.
    A two-day closure of Dampier due to a cyclone threat earlier
this month which forced Rio Tinto to temporarily suspend ship
loading had a limited impact on spot prices.
    For all of 2013, iron ore is forecast to average $125,
according to the median estimate of a Reuters poll of 17
analysts. That is slightly lower than the 2012 average of $128,
as analysts predict weaker prices in the second half when supply
ramps up. 
    "A week back, we had very clear information that mills have
already restocked so there's no need for them to be back in the
market immediately. They might be back by the end of January or
early February to fill up their requirements ahead of the Lunar
New Year," said the Shanghai trader.
    "Most of those we are in touch with have almost two months
of inventory. Unless you expect prices to skyrocket again, you
wouldn't like too much iron ore at the moment."
    Even at current prices, some traders could end up selling
iron ore cargoes at a loss, having bought them at higher prices
before.
    A Beijing-based trader said he received a higher bid of $143
a tonne for an Indian 60/60-percent grade cargo, compared to
around $130 levels last week. But the bid is still below his
cost of about $149-$150, he said.    
    
  Shanghai rebar futures and iron ore indexes at 0733 GMT
                                                                             
  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY3                   3987    +22.00        +0.55
                                       
  THE STEEL INDEX 62 PCT INDEX     145.9     +0.80        +0.55
  METAL BULLETIN INDEX            145.26     +1.00        +0.69
                                                                             
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
          
($1 = 6.2213 Chinese yuan)

 (Editing by Miral Fahmy and Ed Davies)

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