September 4, 2014 / 5:12 AM / in 5 years

UPDATE 1-Iron ore at lowest in nearly 5 yrs, China rebar futures rout continues

* Benchmark iron ore at lowest since October 2009
    * Recovery depends on strength of China stimulus - analysts
    * Steel mill margins could improve as lower costs feed

 (Updates prices)
    By David Stanway
    BEIJING, Sept 4 (Reuters) - Spot iron ore prices have fallen
to their lowest in nearly five years, and China rebar and iron
ore futures both dropped on Thursday to record lows, with credit
still tight and buyers waiting to restock.
    Benchmark 62 percent iron ore for immediate delivery into
China .IO62-CNI=SI fell 1.15 percent on Wednesday to $85.7 per
tonne, its lowest level since October 2009.
    Ample volumes of cheap Australian supplies have been made
available, with deliveries to China from Australia's main iron
ore port, Port Hedland, reaching 32.03 million tonnes in August,
up 4.8 percent from July to a record high. 
    Traders and analysts in China, the biggest iron ore buyer
and the destination of more than two-thirds of seaborne
supplies, said that there was currently not quite enough demand
to bring higher-cost material back on the market.
    "There is still demand but it has a limit and if you keep
producing more and more, prices aren't going to improve," said a
trader based in Beijing. "A September recovery is unrealistic I
think, but it might happen in October, if there's stimulus."
    But activity in China's services sector rebounded more than
expected in August, two surveys showed on Wednesday, and that
might effect the strength of any action from Beijing to
maintains its 7.5 percent growth target, some analysts said.    
    The most traded rebar contract on the Shanghai Futures
Exchange fell 1.29 percent on Thursday to 2,838 yuan
($465) per tonne, the lowest close since the rebar futures were
launched in 2009.
    The most active iron ore contract on the Dalian Commodity
Exchange dropped 3.1 percent to 594 yuan per tonne,
its lowest since the contract's launch in October last year.
    "It seems that the whole iron and steel industry has reached
its Waterloo in just eight months," said Meng Chengxiang,
analyst with online trading portal
    But Meng said it was still increasingly likely that Beijing
will introduce mini-stimulus measures to hit its growth targets
and that banks will loosen credit restrictions, thus raising
steel demand.
    While "excessive pessimism" now prevailed, there was a good
chance that spot iron ore prices would recover to more than $90
per tonne by the end of the month, Meng said.
    As many as 10 of China's listed steel firms reported losses
in the first half of the year, according to research published
by Shanghai Securities News this week, with overall net profits
from 33 listed mills down 43.5 percent over the period.
    Many of the mills claim to have been suffering not only
because of a collapse in product prices, but also because of
growing environmental costs, with the Kunming Iron and Steel
Group last week saying it had been suffering losses of nearly
200 yuan per tonne of steel produced. 
    China has sought to use rising environmental compliance
costs to drive inefficient and small-scale producers out of the
market and help meet capacity closure targets for the year.
    But steel mill margins could start to see an improvement
going into the third quarter as lower input costs start to have
a bigger impact, China's second largest steel mill, the Baoshan
Iron and Steel Corp, said in a briefing to
shareholders last week.
  Rebar and iron ore prices at 0705 GMT
  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN5                   2838    -37.00        -1.29
  DALIAN IRON ORE DCE DCIO JAN5      594    -19.00        -3.10
  SGX IRON ORE FUTURES OCT         84.13     -0.78        -0.92
  THE STEEL INDEX 62 PCT INDEX      85.7     -1.00        -1.15
  METAL BULLETIN INDEX             86.09     -1.31        -1.50
  Dalian iron ore and Shanghai rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
($1 = 6.1353 Chinese yuan)

 (Editing by Tom Hogue and Subhranshu Sahu)
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