Friday 31 August 2012

Iron ore set for worst month since October 2011

Fri Aug 31, 2012
* China mills cut iron ore stocks to below 20 days - Macquarie

* Shanghai rebar has worst month in nearly a year
By Manolo Serapio Jr
HONG KONG, Aug 31 (Reuters) - Iron ore looks set to hit a near three-year low on Friday and to end August with its worst performance in 10 months as Chinese steel producers shun fresh cargoes in the face of waning steel demand.

Iron ore has been the hardest hit among industrial commodities by China's slowdown, losing 36 percent this year as falling steel prices curbed demand from the biggest consumer of the raw material.

Iron ore with 62 percent iron content, the industry benchmark, dropped 1.8 percent to $88.70 per tonne on Thursday, the lowest since October 2009, according to data provider Steel Index.

For the month, the steelmaking component has lost more than 24 percent, the most since it fell 31 percent last October.

"This is all about destocking because I don't think we're seeing a massive collapse in end-user demand for steel.

Everybody's just reducing their inventory of iron ore," said Graeme Train, analyst at Macquarie in Shanghai.

Smaller Chinese steel mills had cut their iron ore inventories to about 17-18 days worth of consumption, versus 27-30 days over the past year, said Train.

He said the "absolute minimum" inventory would be 14 days, which is about the period it takes for cargo imported from top exporter Australia to reach China.

"So there's potential for the mills to destock further, so we could see prices go down to $75-$80," he said.

Shanghai steel rebar futures have dropped about 17 percent this year, less than half the percentage loss for iron ore.

Shanghai rebar fell nearly 10 percent this month, the steepest drop in almost a year, as losses extended to a fifth straight month.

In the face of weak steel demand, most Chinese mills have kept their iron ore inventories low, with some opting to buy small lots from port stockpiles instead of ordering fresh, big cargoes.

"I'm not getting any inquiries at all today," said a physical iron ore trader in Singapore, who forecast that prices would only see support at about $70.

Brazil's Vale SA, the world's top iron ore miner, said it was surprised that prices had fallen below $110 per tonne, which it attributed to excess supply rather than weak demand.

Jose Carlos Martins, who runs Vale's iron ore business, however, said the company's production costs were still well below current prices.

"We are one of the most efficient producers," he said. "We will be the last to leave the market."

  Shanghai rebar futures and iron ore indexes at 0719 GMT

  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN3                   3411    -26.00        -0.76
  PLATTS 62 PCT INDEX              90.75     -1.75        -1.89
  THE STEEL INDEX 62 PCT INDEX      88.7     -1.60        -1.77
  METAL BULLETIN INDEX             89.24     -0.85        -0.94

  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day

(Editing by Robert Birsel and Chris Lewis)

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