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PrintChina steel futures fell for a seventh consecutive session to a record low on Tuesday, pressured by waning demand in the world's top steel market that has thinned appetite for iron ore, dragging it below $110 a tonne, a level last seen in 2009.
The price of iron ore has fallen in all but three trading days over the past six weeks as Chinese steel mills curbed purchases on expectations that rates could fall further while steel prices struggled.
The most active rebar for January delivery on the Shanghai Futures Exchange hit a session trough of 3,578 yuan ($560) per tonne, before closing at 3,591 yuan, down 0.4 percent.
"The structural driver of steel demand - urbanisation - remains a valid long-term call, but it may halt in 2012 as the central government continues its crackdown on house prices," Henry Liu, head of commodity research at Hong Kong-based Mirae Asset, said in a note.
"The cyclical driver - China's credit growth - will continue to slow down as the government redresses its rapid growth of the past few years."
Liu said he expected China's crude steel output growth to slow to 4 percent in 2012 from 8 percent in 2011 and 13 percent in 2010. Mirae sees this year's production at 720 million tonnes, still a record high.
Despite weak demand, Chinese mills have barely reduced steel output, with the excess supply further weighing on prices.
Industry data on Friday showed the country's crude steel production rose 1.1 percent in early August from late July, as many steel mills resumed output after a round of brief maintenance in mid-July.
Steel firms in China are wary about cutting production too much for fear of losing market share in a highly fragmented sector. Also, with the bulk of the country's major steel mills owned by the state, most steelmakers keep their furnaces burning to maintain employment.
"The situation is getting serious. Because steel prices keep falling, iron ore will continue to follow. But how low prices will go is still a question mark," said an iron ore trader in Shanghai.
Benchmark iron ore with 62 percent iron content.IO62-CNI=SI dropped nearly 1 percent to $109.30 per tonne on Monday, the weakest since Dec. 24, 2009, based on data from information provider Steel Index.
Spot iron ore prices have fallen 21 percent so far this year, outpacing a 13 percent slide in Chinese steel futures.
Buying interest remains limited as prices for spot cargoes continued to decline. Sellers cut price offers for foreign cargoes in China by another $1-$2 a tonne on Tuesday, according to Beijing-based consultancy Umetal.
Miner Rio Tinto Ltd sold 61.5-percent grade Australian Pilbara iron ore fines at $111.70 per tonne at a tender on Monday, down from $113.21 last week, traders said.
Vale SA sold 64.74-percent grade Brazilian Carajas iron ore fines at about $117 per tonne, about $4 lower than the previous sale of a similar grade, traders said.
Vale is offering about 167,000 tonnes of 65.59-percent grade iron ore lumps on Tuesday, said the Shanghai-based trader.(Source: Reuters)
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