August 21, 2012 / 4:47 AM / 5 years ago

Iron Ore-Shanghai steel hits record low as demand wanes

* Shanghai rebar extends losses to 7th session
    * Iron ore below $110/tonne, weakest since December 2009

 (Adds cut in price offers, updates rebar price)
    By Manolo Serapio Jr
    SINGAPORE, Aug 21 (Reuters) - China steel futures fell for a
seventh consecutive session to a record low on Tuesday,
pressured by waning demand in the world's top steel market that
has thinned appetite for iron ore, dragging it below $110 a
tonne, a level last seen in 2009.
    The price of iron ore has fallen in all but three trading
days over the past six weeks as Chinese steel mills curbed
purchases on expectations that rates could fall further while
steel prices struggled.
    The most active rebar for January delivery on the Shanghai
Futures Exchange hit a session trough of 3,578 yuan
($560) per tonne, before closing at 3,591 yuan, down 0.4
    "The structural driver of steel demand - urbanisation -
remains a valid long-term call, but it may halt in 2012 as the
central government continues its crackdown on house prices,"
Henry Liu, head of commodity research at Hong Kong-based Mirae
Asset, said in a note.
    "The cyclical driver - China's credit growth - will continue
to slow down as the government redresses its rapid growth of the
past few years."
    Liu said he expected China's crude steel output growth to
slow to 4 percent in 2012 from 8 percent in 2011 and 13 percent
in 2010. Mirae sees this year's production at 720 million
tonnes, still a record high.
    Despite weak demand, Chinese mills have barely reduced steel
output, with the excess supply further weighing on prices.
    Industry data on Friday showed the country's crude steel
production rose 1.1 percent in early August from late July, as
many steel mills resumed output after a round of brief
maintenance in mid-July. 
    Steel firms in China are wary about cutting production too
much for fear of losing market share in a highly fragmented
sector. Also, with the bulk of the country's major steel mills
owned by the state, most steelmakers keep their furnaces burning
to maintain employment.
    "The situation is getting serious. Because steel prices keep
falling, iron ore will continue to follow. But how low prices
will go is still a question mark," said an iron ore trader in
    Benchmark iron ore with 62 percent iron content
.IO62-CNI=SI dropped nearly 1 percent to $109.30 per tonne on
Monday, the weakest since Dec. 24, 2009, based on data from
information provider Steel Index.    
    Spot iron ore prices have fallen 21 percent so far this
year, outpacing a 13 percent slide in Chinese steel futures.    
    Buying interest remains limited as prices for spot cargoes
continued to decline. Sellers cut price offers for foreign
cargoes in China by another $1-$2 a tonne on Tuesday, according
to Beijing-based consultancy Umetal.
    Miner Rio Tinto Ltd  sold 61.5-percent grade
Australian Pilbara iron ore fines at $111.70 per tonne at a
tender on Monday, down from $113.21 last week, traders said.
    Vale SA sold 64.74-percent grade Brazilian
Carajas iron ore fines at about $117 per tonne, about $4 lower
than the previous sale of a similar grade, traders said.
    Vale is offering about 167,000 tonnes of 65.59-percent grade
iron ore lumps on Tuesday, said the Shanghai-based trader.    
  Shanghai rebar futures and iron ore indexes at 0701 GMT
  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN3                   3591    -16.00        -0.44
  THE STEEL INDEX 62 PCT INDEX    109.30     -0.90        -0.82
  METAL BULLETIN INDEX            111.57     -0.09        -0.08
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.3594 Chinese yuan)

 (Editing by Chris Lewis and Joseph Radford)

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