May 29, 2019 / 4:04 AM / 22 days ago

China's Dalian iron ore falls, snapping rally after fees raised

* Dalian iron ore benchmark contract falls as much as 3.8%

* Dalian exchange raises fees for some iron ore futures

* Higher transaction fees seen as a move to curb speculation

* Vale seeks to downplay risk of dam break at Gongo Soco mine

By Enrico Dela Cruz

MANILA, May 29 (Reuters) - China’s iron ore benchmark fell on Wednesday, ending a rally that had brought it to record highs, after the Dalian Commodity Exchange (DCE) announced increases in transaction fees for some futures contracts.

In a May 28 notice to its members, the DCE said the higher transaction fees, which cover several contracts including the current benchmark - the most active September 2019 contract - will take effect starting on May 30.

The move follows last week’s notice from the DCE to members asking them to trade “rationally” after noting large fluctuations in iron ore and coke futures prices.

The most-traded DCE iron ore contract fell as much as 3.8% to 731.5 yuan ($105.80) a tonne shortly after trading began on Wednesday, and was down 3.0% as of 0256 GMT.

Some market participants have opted to “reduce their positions and take some profits” following the DCE announcement, said Helen Lau, metals and mining analyst at Argonaut Securities in Hong Kong.

“That is a way to curb speculation,” she said, describing the higher fees as a “tax burden” for market participants.

The current market sentiment has also weighed on the rest of China’s steel complex, with rebar prices on the Shanghai Futures Exchange (ShFE) hitting their lowest in more than a week.

Lau said iron ore miner Vale SA’s statement on Tuesday saying its Gongo Soco mining pit in Brazil has a lower risk of collapsing than previously thought also may have helped ease worries about tight supply.

“Basically Vale tried to downplay the risk. That is maybe another driver” for the pullback in iron ore prices, she said.

Iron ore futures on the Dalian exchange hit record highs in recent days, touching an all-time peak of 774.5 yuan a tonne on Tuesday, with “speculative money” seen flowing into the market amid worries about tight supply.

Spot iron ore for delivery to China, with 62% fines SH-CCN-IRNOR62 climbed to a five-year high at $108.50 a tonne on Tuesday, according to SteelHome consultancy.

The inactive Gongo Soco mine’s collapse was previously seen as inevitable, raising concerns that Vale could face further regulatory headwinds. In January, Vale’s Brumadinho dam collapsed, killing more than 230 people and putting the miner’s operations under close scrutiny by regulators.

The Brumadinho dam disaster and subsequent mine and dam closures in Brazil had prompted Vale, the world’s biggest iron ore miner, to slash its iron ore sales estimate for this year, pushing prices to their highest levels ever.

With seaborne arrivals limited while domestic demand remained brisk, iron ore stockpiles at Chinese ports have fallen to the lowest in more than two years. SH-TOT-IRONINV

Other steel-making raw materials fell as well, with Dalian coking coal falling as much as 1% to 1,376.5 yuan a tonne. Coke slipped as much as 1.8% to 2,206 yuan.

The most-active ShFE construction steel rebar contract lost as much as 0.9% to 3,808 yuan a tonne, its lowest since May 21.

Hot rolled coil, used in cars and home appliances, edged down 0.8% to 3,640 yuan.

($1 = 6.9137 yuan)

Reporting by Enrico dela Cruz; Editing by Tom Hogue

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