August 27, 2013 / 4:02 AM / 4 years ago

Shanghai steel slips as excess supply concerns weigh

* Shanghai rebar drops the most in almost a month
    * Iron ore steady near $139/T, bids scarce in spot market

    By Manolo Serapio Jr
    SINGAPORE, Aug 27 (Reuters) - Shanghai rebar steel futures
dropped the most in nearly a month on Tuesday on concerns rising
supply in China would limit the impact of any recovery in demand
in the world's top consumer of the alloy.
    Those concerns were underscored by Baoshan Iron and Steel
, China's biggest listed steelmaker by market value,
which said on Monday that steel prices would weaken in the
second half. 
    Prices had rebounded from late June after a four-month
decline amid signs that China's economy was stabilising. But
that also spurred steel mills to produce more, effectively
putting a cap on price gains.
    "The price upside for steel is a bit risky because supply
responds quickly to the increase in prices," said Helen Lau,
senior mining analyst at UOB-Kay Hian in Hong Kong.
    "The market needs to see a stronger pickup on the demand
side in order to digest the supply glut."
    The most-traded rebar contract for January delivery on the
Shanghai Futures Exchange was down 0.8 percent at 3,792
yuan ($620) a tonne by 0330 GMT. 
    That decline was the steepest for the most-active contract
since July 29, and followed an increase in prices to a
1-1/2-week high on Monday.    
    Overcapacity in China, which produces nearly half the
world's steel, has thinned profit margins of domestic
steelmakers, limiting the impact of any recovery in demand.
    The country's daily average crude steel output stood at 2.14
million tonnes in the first 10 days of August, up almost 3
percent from July 21-31, industry estimates showed last week.
    There was limited activity on the spot iron ore market on
Tuesday, with several Australian cargoes on offer on both the
globalORE and China Beijing International Mining Exchange
trading platforms but no bids so far, traders said.
    Benchmark 62 percent grade iron ore .IO62-CNI=SI inched up
10 cents to $138.70 a tonne on Monday, based on the latest
available data from compiler Steel Index.
    "At this point, I think we're seeing supply and demand at a
balanced level. We may see further price gains in iron ore but
it would be slow," said a trader in Shanghai.
    UOB-Kay Hian's Lau said unless steel prices rise
substantially, Chinese demand for imported iron ore may
similarly be curbed.
    "If steel prices sustain their weakness in the fourth
quarter because of oversupply, then Chinese mills will be
cautious in importing iron ore again," she said.        
  Shanghai rebar futures and iron ore indexes at 0330 GMT
  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN4                   3792    -30.00        -0.78
  THE STEEL INDEX 62 PCT INDEX     138.7     +0.10        +0.07
  METAL BULLETIN INDEX            141.09     +1.82        +1.31
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.1225 Chinese yuan)

 (Editing by Muralikumar Anantharaman)

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