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PrintChina's steel futures slipped for a fourth day in six on Wednesday as sluggish demand kept pressure on spot prices of raw material iron ore, and further weakness was expected in both commodities before the start of any recovery.
Iron ore, down about 17 percent this year, reached its cheapest level in 2-1/2 years as Chinese steel mills, the world's biggest buyers of the ore, limited spot purchases as they awaited a rebound in steel prices.
The most-traded January rebar contract on the Shanghai Futures Exchange closed down half a percent at 3,667 yuan ($580) a tonne. The contract hit an all-time low of 3,631 yuan on Friday and is down 11 percent this year.
The spot steel market is "still very weak", said an iron ore trader based in Shanghai.
"It's difficult to expect any meaningful recovery in both steel and iron ore prices in the near term," the trader said.
A stuttering Chinese economy is limiting the country's demand for raw materials. With abundant stocks at home, analysts expect China's imports of iron ore and other commodities such as copper and crude oil to drop for a second month in a row in July. The data is due to be released on Friday.
But Rio Tinto , the world's No. 2 iron ore miner, said it expected to see signs of improvement in China's economic activity by the end of the year. It stuck to its $16 billion spending plan for 2012, even as weaker prices dragged first-half profits 34 percent lower.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI eased 1.1 percent to $114.90 per tonne on Wednesday, according to Steel Index, falling for a fifth straight day.
That is the lowest level since Dec. 29, 2009.
Iron ore shipments to China from Port Hedland in top exporter Australia fell 7.1 percent in July from the previous month, although they were still up strongly from July last year, port authority data showed.
SHORT ON STOCK
Meanwhile, miners this week managed to sell cargoes at prices not far from recent deals and in line with market offers, suggesting the market could soon find a bottom, traders said.
BHP Billiton sold 90,000 tonnes of 57.7 percent grade Australian Yandi iron ore fines at $107.23 a tonne at a tender on Tuesday, against $107.50 last week, the Shanghai trader said.
Vale sold a 147,000 tonne cargo of 64.08 percent grade iron ore at $121.97, a level similar to recent deals, he said.
"Some mills might be really short on stock, so they need to replenish," said a Singapore-based trader.
Unless steel demand picks up, however, traders say iron ore prices are unlikely to recover strongly and could even slip further if more Chinese producers curb output.
China's crude steel production fell 2.2 percent to 1.949 million tonnes on average over July 21-31 from July 11-20, data from the China Iron and Steel Association showed.
"We expect that downward pressure in global and Chinese steel prices will likely continue but show a decelerating trend over the next month or so," Deutsche Bank said in a note.
"We therefore expect the demand for iron ore cargoes to continue to erode."
Heavy rain in Shanghai could also dampen physical trading on Wednesday, traders said.
Typhoon Haikui struck China on Wednesday, packing winds of up to 110 km per hour (68 mph), prompting officials to evacuate nearly 2 million people and grounding hundreds of flights to and from Shanghai and other cities.(Source: Reuters)
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