September 23, 2014 / 3:58 AM / 6 years ago

China steel, iron dip again, no stimulus to mop up supply glut

* Iron ore prices slip below $80/t for first time in 5 yrs
    * Market still oversupplied, China demand recovery unlikely
    * Little sign of restocking ahead of next week's holiday

    By David Stanway
    BEIJING, Sept 23 (Reuters) - Steel futures in China
continued their long slump on Tuesday, with no sign that steel
or iron ore demand will pick up in a chronically oversupplied
    The most traded rebar contract on the Shanghai Futures
Exchange fell 1.17 percent on Tuesday morning to
another new low of 2,618 yuan ($426) per tonne. The most active
iron ore contract on the Dalian Commodity Exchange 
dropped 0.5 percent to end at 557 yuan per tonne.
    Benchmark 62 percent iron ore for immediate delivery into
China .IO62-CNI=SI fell below the important $80 per tonne
level for the first time in five years, ending Monday at $79.8,
according to The Steel Index, dashing hopes that end-users would
restock ahead of China's weeklong Oct. 1 National Day holiday.
    The index has fallen nearly 41 percent since the turn of the
year and more than 8 percent in September, normally a strong
month for steel and iron ore in China, the world's biggest
consumer of both commodities.     
    Analysts suggested prices could drop even further, with
China's leaders repeatedly ruling out the possibility of any
large-scale stimulus in the coming months.
    "Without strong stimulus, domestic demand growth will
continue to slow and restrain steel and iron ore consumption,
meaning there is still room for iron ore prices to drop
further," said trading portal in a note on Tuesday. 
    Oversupply is still the major concern, with Nev Power, chief
of Australia's Fortescue Mining Group, telling a
Tuesday conference that supply is "not being cut back fast
enough to reduce the overhang in the market". 
    Many higher-cost Chinese iron ore producers have been
keeping output at high levels despite widespread expectations
that low prices would force them to shut. 
    Traders in China insisted that most of the blame still lay
with giant Australian miners Rio Tinto  and BHP
Billiton . 
    According to the latest data, shipments of Australian ore
reached the second highest ever in August and amounted to a
record 62.9 percent of China's total import volume over the
month, with many second-tier supplier countries driven out of
the market by the price collapse.               
    "Many producers have not closed immediately because they
have earned very good profits before, so they have been waiting,
but only the Australians and Brazil's Vale can
continue at this rate - I think many in Africa or Canada will go
next," said the head of a large trading firm based in Beijing.
    "Producers didn't think China could slow so quickly and they
have invested a lot, so they have had to continue producing to
maintain cashflow. A firm like Fortescue has to continue in
order to break even," he said.
    According to data provider SteelHome, inventories of
imported iron ore at Chinese ports reached 112.35 million tonnes
by Sept. 19 SH-TOT-IRONINV, rising 300,000 tonnes compared to
the end of the previous week and inching closer to a record high
of 113.7 million tonnes set in early July. 
  Rebar and iron ore prices at 0336 GMT
  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN5                   2618    -31.00        -1.17
  DALIAN IRON ORE DCE DCIO JAN5      557     -3.00        -0.54
  SGX IRON ORE FUTURES OCT         77.92     +0.09        +0.12
  THE STEEL INDEX 62 PCT INDEX      79.8     -1.90        -2.33
  METAL BULLETIN INDEX              80.1     -0.92        -1.14
  Dalian iron ore and Shanghai rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
(1 US dollar = 6.1400 Chinese yuan)

 (Editing by Michael Perry)
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