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PrintLimited buying interest from top consumer China drove spot iron ore prices to their lowest since December 2009 amid sluggish Chinese steel demand that is preventing a rebound in iron ore, even after it has slumped more than 18 percent this year.
Iron ore is taking a hit as China's economy slows, with the demand outlook dimmed further by data last week, including weak trade numbers, that cast doubts on an anticipated recovery in the second half of 2012.
Iron ore with 62 percent iron content .IO62-CNI=SI, the industry benchmark, dropped 0.8 percent to $112.90 a tonne on Monday, according to the Steel Index.
That is the lowest level for iron ore since Dec. 29, 2009. The steelmaking raw material has fallen in 22 of the past 24 trading sessions.
"People are not confident about the steel market in August. The number of parties who bid for spot tenders is very limited," said a shipping manager for an iron ore trading firm in Shanghai.
The pessimism is likely to extend beyond this month. Chinese steelmakers, led by Baoshan Iron and Steel, the country's biggest listed steel producer, cut prices for September, usually the start of a seasonally brisk period when construction picks up.
The most-traded rebar for January delivery on the Shanghai Futures Exchange closed down half a percent at 3,666 yuan ($580) a tonne on Tuesday, not far off the contract low of 3,631 yuan reached earlier this month.
Chinese steel mills, at least those that are still buying spot cargoes, are limiting iron ore purchases "because they feel that prices will fall further," said a Hong Kong-based trader.
"Many steel mills are aggressively destocking their iron ore inventory and some are able to buy cheap from port stockpiles," he said.
STAGNANT DEMAND
Inventories of iron ore at small Chinese steel mills have dropped to about 21 days' worth of consumption, investment bank Macquarie said in a note, citing data from Chinese consultancy Mysteel.
"The only time it has been this low before was in October last year, when mills came rapidly back into the market having run short of ore.
"We would again expect mills to have to increase purchases just to maintain current levels, but with underlying steel demand stagnant, we do not expect this to be overly aggressive," Macquarie said.
China's voracious appetite for iron ore was behind a tripling in prices to near $200 in early 2011 from 2008, as Beijing's urbanisation bid meant huge demand for steel.
But now iron ore is underperforming other China-focused commodities, such as copper, which has only dropped by around 2 percent this year versus iron ore's 18.5 percent slide.
Despite falling prices, miners continue to push out spot cargoes, with top iron ore producer Vale selling another 172,000 tonnes of 63.29-percent grade material at a tender on Tuesday, traders said.
Vale sold 150,000 tonnes of 65-percent grade iron ore at $123.51 a tonne, including freight, at a tender on Monday, traders said. Last week, Vale sold about seven cargoes on the spot market estimated at more than 1 million tonnes, traders said.
"I think that price is the lowest for that grade this year," the Shanghai-based manager said.
"We are not bidding for any cargo at the moment, we are quite unsure about the future. We would prefer to wait until the market stabilises first." (Source: Reuters)
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