November 14, 2012 / 4:22 AM / in 5 years

Iron ore at 4-month peak, cold snap shuts Chinese mines

* Iron ore buying may stall as construction slows in winter
    * Overcapacity persists in China steel mkt despite stocks

    By Manolo Serapio Jr
    SINGAPORE, Nov 14 (Reuters) - Iron ore edged up to its
priciest since July as steelmakers in top consumer China picked
up imported cargoes to sustain production while some domestic
mines are shut for a cold snap, although the appetite could soon
wane, along with steel demand.
    Construction activity has slowed in northern China, which
has seen heavy snow, traders said, which should curb demand for
steel and eventually for raw material iron ore.
    Benchmark iron ore with 62 percent iron content
.IO62-CNI=SI gained 0.2 percent to $122.30 a tonne on Tuesday,
the highest level since July 24, based on data from price
provider Steel Index.
    Iron ore may be on course to stretch its winning run into a
third straight month in November, during which its price has
risen 2.5 percent. 
    A recovery in Chinese steel prices from September lows
boosted profit margins of producers, spurring demand for iron
ore, and fuelling its recovery from three-year troughs below $87
 in early September.
    "I heard some steel mills haven't bought enough cargoes, so
we might see some more buying and most likely prices will be
maintained around current levels," said an iron ore trader based
in Shanghai.
    "But I'm afraid the purchases may slow down if the weather
gets colder."
    Curbs on domestic iron ore production since October had
helped boost Chinese demand for imports, with some mine
shutdowns also prompted by Beijing's efforts to ensure safety
ahead of the opening of a party congress this month that will
usher in a once-in-a-decade leadership change, the trader said.
    Iron ore output slipped 3.3 percent from September to nearly
125 million tonnes last month, according to data released by the
National Bureau of Statistics on Tuesday. 
    China's average daily crude steel output similarly eased in
October, down 1.3 percent on the month to 1.906 million tonnes,
although the modest drop supports expectations that the world's
No. 2 economy is stabilising after a seven-quarter slowdown.
    "We think Chinese steel production will likely remain stable
or decline modestly in coming months as a result of firming
demand as the Chinese economy continues to strengthen,"
Chicago-based Steel Market Intelligence said in a note.
    "We believe exports will trend lower in tandem with
improving consumption."
    Inventories of five main steel products, including
hot-rolled coil and rebar, in 26 major markets in China fell 2.8
percent from the end of October to 12.08 million tonnes on Nov.
9, industry group China Iron and Steel Association (CISA) said.
    But despite falling inventories, a recent rally in steel
prices is facing headwinds as overcapacity will continue to eat
into profit margins of Chinese steel producers, CISA said.
    The most traded rebar contract for May delivery on the
Shanghai Futures Exchange was little changed at 3,641
yuan ($580) a tonne by the midday break.
  Shanghai rebar futures and iron ore indexes at 0348 GMT
  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY3                   3641     -8.00        -0.22
  THE STEEL INDEX 62 PCT INDEX     122.3     +0.20        +0.16
  METAL BULLETIN INDEX            122.91     -0.66        -0.53
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1=6.2265 Chinese yuan)

 (Reporting by Manolo Serapio Jr.; Editing by Clarence

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