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UPDATE 1-China iron ore futures extend losses; RRR cut impact muted
February 5, 2015 / 7:34 AM / 3 years ago

UPDATE 1-China iron ore futures extend losses; RRR cut impact muted

* Weak fundamentals dominate iron ore market
    * RRR cut fails to buoy steel and iron ore prices
    * Fitch cuts iron ore price estimate to $65 from $90

 (Updates prices)
    SHANGHAI, Feb 5 (Reuters) - China's iron ore futures
stretched losses on Thursday, pressured by persistent weakness
in fundamentals, while investors shrugged off the central bank's
decision that may ease liquidity tightness to spur growth.
    Iron ore futures for May delivery on the Dalian Commodity
Exchange closed down for the second straight day,
dropping 0.4 percent to 474 yuan ($76). 
    Some Chinese steel mills have returned to the market for
replenishing stockpiles ahead of the Lunar New Year holiday,
while a supply glut and leaner steel demand have put a lid on
prices of the raw material.
    "While some buying activity emerged with steel mills taking
advantage of current low prices ahead of the holiday period, the
demand fundamentals for iron ore remain weak as structural
oversupply persists," ANZ Bank said in a note on Thursday.
    Fitch Ratings has lowered its average iron ore price
estimate for this year to $65 a tonne from $90, due to weaker 
growth in Chinese steel production. 
    The China Iron & Steel Association forecast the country's
crude steel output to fall 1.1 percent to 814 million tonnes
this year, after rapid expansion in the last decade, as a
slowing economy hit demand growth for commodities.
    About a third of China's iron ore mines have halted
production and this could rise as high as 45 percent by the end
of the year if the price of the raw material stays below $70 a
tonne, a local mining executive said. 
    China's economy faces formidable headwinds into 2015 as a
property downturn persists while companies will continue to
struggle to pay off debt and export demand may remain erratic.
    China's central bank lowered the reserve requirement ratio
(RRR) for all commercial banks by 50 basis points, adding more
liquidity to the world's second-biggest economy to help boost
bank lending and combat a growth slowdown. 
    However, analysts said the market reaction was muted to the
central bank's move as this is not enough to help boost the
    "The RRR cut will be more beneficial to small- and
medium-enterprises rather than the property and infrastructure
sector," said Hu Xiaodong, an analyst with Nanhua Futures in
    The most-traded May rebar contract on the Shanghai Futures
Exchange closed down 0.5 percent at 2,472 yuan.
    Benchmark 62 percent grade iron ore for immediate delivery
to China .IO62-CNI=SI fell 1 percent to $61.40 a tonne on
Wednesday, according to data compiled by the Steel Index.   
 Rebar and iron ore prices at 0708 GMT
  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY5                   2472    -12.00        -0.48
  DALIAN IRON ORE DCE DCIO MAY5      474     -2.00        -0.42
  SGX IRON ORE FUTURES MAR         61.57     -1.10        -1.76
  THE STEEL INDEX 62 PCT INDEX      61.4     -0.60        -0.97
  METAL BULLETIN INDEX             62.58     -0.60        -0.95
  Dalian iron ore and Shanghai rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
($1 = 6.2530 Chinese yuan renminbi)

 (Reporting by Ruby Lian, David Stanway and Shanghai Newsroom;
Editing by Subhranshu Sahu)

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