Tue Sep 11, 2012
* Iron ore up 7 pct on Monday, further gains seen capped
* India's Goa temporarily halts mining activity
* Baosteel keeps steel prices steady in Oct
By Manolo Serapio Jr
SINGAPORE, Sept 11 (Reuters) - Shanghai steel futures retreated on Tuesday, after two days of steep gains, amid concern a slew of Chinese infrastructure projects may not be enough to sustain a pickup in demand in a sector still saddled by excess production.
The drop in Chinese steel prices could limit the recovery in iron ore which climbed nearly 7 percent on Monday, on expectations that Beijing's approval of more than $150 billion in infrastructure projects would revive steel demand.
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange fell 1 percent to close at 3,461 yuan ($550) per tonne. Rebar, used in construction, surged by 7 percent in the past two sessions.
"We have to see Chinese steel mills cutting production significantly to reverse the direction in steel prices," said Henry Liu, head of commodities research at Mirae Asset Securities in Hong Kong.
"Until that happens it's impossible to see a meaningful rebound in iron ore prices."
Iron ore and steel prices in China normally move in tandem, as mills manage their iron ore purchases based on how much demand they are getting for their steel.
Last week, iron ore dropped to its lowest in nearly three years after Shanghai rebar futures hit record low. But both rebounded sharply from Friday after China approved projects to build highways, ports and airport runways.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI jumped by $6 to $95 a tonne on Monday as higher steel prices prompted Chinese mills to re-enter the iron ore market, said data provider the Steel Index.
TOO FAST, TOO SOON?
But traders said some iron ore buyers are starting to doubt whether the current rally has momentum.
"Buyers are being cautious because prices went up too sharply when underlying steel consumption remains the same as two months ago," said an iron ore trader in Singapore.
In a sign Chinese steel producers are still unsure demand would pick up swiftly, Baoshan Iron and Steel, China's biggest listed steelmaker, said it will keep prices of its main products unchanged in October from September.
Liu of Mirae Asset Securities said what will limit any steel price recovery is the chronic overcapacity in China's steel sector and the reluctance of many mills to cut production significantly.
China's crude steel output was down 1.7 percent in August from a year earlier, government data showed on Tuesday. For January-August, output is up 2.3 percent at around 482 million tonnes.
Many steel mills in China are wary of curbing production sharply to protect their market share in a highly fragmented sector and with the bigger, state-run producers also burdened to keep jobs.
A limited rise in Chinese steel prices will cap the rebound in iron ore prices to between $100 and $110 a tonne, said Liu.
Elsewhere, India's western Goa state temporarily suspended all mining activities, effective Tuesday, after an expert panel formed by the federal government found "serious illegalities and irregularities" in mining operations, the state government said.
The move is likely to further restrain exports from India -- down by over 40 percent in April-June -- at a time when shippers are already constrained by higher export taxes and bans including in the state of Karnataka.
"It will help sentiment as steel mills trying to restock in China see that there's potential for supply disruption, but it won't have a lasting impact," said Macquarie commodities analyst Graeme Train, when asked on the effect of the Goa mining suspension on the spot iron ore market.
In the seven months to July, India remained the third biggest exporter of iron ore to top market China, although volume has dropped by 44 percent to 30 million tonnes.
Shanghai rebar futures and iron ore indexes at 0753 GMT
Contract Last Change Pct Change
SHFE REBAR JAN3 3461 -36.00 -1.03
PLATTS 62 PCT INDEX 97.00 +6.25 +6.89
THE STEEL INDEX 62 PCT INDEX 95.00 +6.00 +6.74
METAL BULLETIN INDEX 96.12 +4.74 +5.19
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3376 Chinese yuan)
(Editing by Himani Sarkar)
* Iron ore up 7 pct on Monday, further gains seen capped
* India's Goa temporarily halts mining activity
* Baosteel keeps steel prices steady in Oct
By Manolo Serapio Jr
SINGAPORE, Sept 11 (Reuters) - Shanghai steel futures retreated on Tuesday, after two days of steep gains, amid concern a slew of Chinese infrastructure projects may not be enough to sustain a pickup in demand in a sector still saddled by excess production.
The drop in Chinese steel prices could limit the recovery in iron ore which climbed nearly 7 percent on Monday, on expectations that Beijing's approval of more than $150 billion in infrastructure projects would revive steel demand.
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange fell 1 percent to close at 3,461 yuan ($550) per tonne. Rebar, used in construction, surged by 7 percent in the past two sessions.
"We have to see Chinese steel mills cutting production significantly to reverse the direction in steel prices," said Henry Liu, head of commodities research at Mirae Asset Securities in Hong Kong.
"Until that happens it's impossible to see a meaningful rebound in iron ore prices."
Iron ore and steel prices in China normally move in tandem, as mills manage their iron ore purchases based on how much demand they are getting for their steel.
Last week, iron ore dropped to its lowest in nearly three years after Shanghai rebar futures hit record low. But both rebounded sharply from Friday after China approved projects to build highways, ports and airport runways.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI jumped by $6 to $95 a tonne on Monday as higher steel prices prompted Chinese mills to re-enter the iron ore market, said data provider the Steel Index.
TOO FAST, TOO SOON?
But traders said some iron ore buyers are starting to doubt whether the current rally has momentum.
"Buyers are being cautious because prices went up too sharply when underlying steel consumption remains the same as two months ago," said an iron ore trader in Singapore.
In a sign Chinese steel producers are still unsure demand would pick up swiftly, Baoshan Iron and Steel, China's biggest listed steelmaker, said it will keep prices of its main products unchanged in October from September.
Liu of Mirae Asset Securities said what will limit any steel price recovery is the chronic overcapacity in China's steel sector and the reluctance of many mills to cut production significantly.
China's crude steel output was down 1.7 percent in August from a year earlier, government data showed on Tuesday. For January-August, output is up 2.3 percent at around 482 million tonnes.
Many steel mills in China are wary of curbing production sharply to protect their market share in a highly fragmented sector and with the bigger, state-run producers also burdened to keep jobs.
A limited rise in Chinese steel prices will cap the rebound in iron ore prices to between $100 and $110 a tonne, said Liu.
Elsewhere, India's western Goa state temporarily suspended all mining activities, effective Tuesday, after an expert panel formed by the federal government found "serious illegalities and irregularities" in mining operations, the state government said.
The move is likely to further restrain exports from India -- down by over 40 percent in April-June -- at a time when shippers are already constrained by higher export taxes and bans including in the state of Karnataka.
"It will help sentiment as steel mills trying to restock in China see that there's potential for supply disruption, but it won't have a lasting impact," said Macquarie commodities analyst Graeme Train, when asked on the effect of the Goa mining suspension on the spot iron ore market.
In the seven months to July, India remained the third biggest exporter of iron ore to top market China, although volume has dropped by 44 percent to 30 million tonnes.
Shanghai rebar futures and iron ore indexes at 0753 GMT
Contract Last Change Pct Change
SHFE REBAR JAN3 3461 -36.00 -1.03
PLATTS 62 PCT INDEX 97.00 +6.25 +6.89
THE STEEL INDEX 62 PCT INDEX 95.00 +6.00 +6.74
METAL BULLETIN INDEX 96.12 +4.74 +5.19
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3376 Chinese yuan)
(Editing by Himani Sarkar)
No comments:
Post a Comment