Iron ore at 3-month top, China buying holds up ahead of transition

Wed Nov 7, 2012
* Market betting on pro-growth measures at China leadership change

* Some buyers seen stepping back as steel prices slip again
By Manolo Serapio Jr
SINGAPORE, Nov 7 (Reuters) - Iron ore prices rose to their highest since July as steel mills in top consumer China replenished supplies of the raw material and traders bet on the new Chinese leadership launching measures to support the economy at this week's handover.

Trading in both physical and swaps markets was limited as traders focused on the neck-and-neck U.S. presidential race. But Asian stocks and the dollar eased as investors began to price in a likely win for President Barack Obama, who is seen to favour keeping interest rates low.

Weaker price offers for imported cargoes in China on Wednesday suggest some buyers may be stepping back from the market after the recent upturn, especially with spot steel prices slipping.

Benchmark iron ore with 62 percent iron content .IO62-CNI=SI edged up half a percent to $121.10 a tonne on Tuesday, its highest since July 24, according to data provider Steel Index.

"No one is really chasing the market hard, but it appears that the Chinese are soaking up the volume of cargoes on offer," said Jamie Pearce, head of iron ore broking at SSY Futures.

"I think some of the iron ore traders are betting the leadership transition will provide the catalyst for a resurgence in iron ore demand, while mills are also restocking supplies and daily crude steel output is at near record levels seen earlier in the year."

There is speculation that China's once-in-a-decade leadership transition, which kicks off on Thursday, "will be accompanied by announcements of further construction projects," Commonwealth Bank of Australia said in a note, explaining the recent gains in iron ore prices.

"However, lower steel margins have seen some buyers withdraw from the market," the bank said.

A rebound in Chinese steel prices from September lows had buoyed profit margins of steelmakers, encouraging them to stock up on iron ore as most keep plants running at full capacity.

China's average daily crude steel output hit nearly 2 million tonnes over the Oct. 11-20 period, up 4 percent from the prior 10-day period and matching a level last seen in early June, latest industry data showed.

But the price of steel billet in China's key Tangshan area has fallen by more than 1 percent over the past week to 3,250 yuan ($520) a tonne on Tuesday, while Shanghai rebar futures are down 0.7 percent so far this week.

The most traded rebar contract for May delivery on the Shanghai Futures Exchange was little changed at 3,649 yuan per tonne by the midday break, with risk asset investors monitoring the outcome of the U.S. presidential election.

  Shanghai rebar futures and iron ore indexes at 0353 GMT

  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY3                   3649     +7.00        +0.19
  PLATTS 62 PCT INDEX             121.75     -0.25        -0.20
  THE STEEL INDEX 62 PCT INDEX     121.1     +0.60        +0.50
  METAL BULLETIN INDEX            121.49     -0.17        -0.14

  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.2456 Chinese yuan)

(Reporting by Manolo Serapio Jr.)