Iron Ore-Contract defaults as price slides, Shanghai rebar record low

By Manolo Serapio Jr and Ruby Lian
SINGAPORE/SHANGHAI, Aug 22 (Reuters) - Shanghai steel
futures hit a record low on Wednesday, exerting more pressure on
prices of the raw material iron ore whose freefall has forced
Chinese steel producers to skip contracted cargoes.
Chinese mills, the world's biggest iron ore buyers, have
either cancelled or deferred shipments of up to 4 million tonnes
this month after iron ore prices tumbled to their lowest in more
than 2-1/2 years, the latest evidence of a slowdown in the
world's top steel market.
Shanghai steel rebar futures, down nearly 14
percent this year, hit a record low of 3,555 yuan ($560) a tonne
on Wednesday. It closed about 1 percent lower at 3,557 yuan, its
eighth daily loss in a row.
"I don't feel good. I don't think iron ore prices will
bottom out soon. As long as steel mills don't aggressively cut
production, the market will not see a balance," said an iron ore
trader in Shanghai.
There are still a few traders hoping to see iron ore prices
rebound soon and started to buy some cargo.
"We are looking to buy some tonnes as iron ore prices may
hit the bottom soon," said a trader in China's port city of
Dalian.
However, many steel traders believed large-scale stockpiling
either by steel mills or traders will not happen even if prices
hit bottom as the high inventories sitting at ports and weak
steel prices have darkened the prospects.
A Qingdao-based trader said iron ore inventories at the port
had risen by 720,000 tonnes to 18.23 million tonnes at the start
of this week from a week ago, reflecting thin appetite among
mills.
Iron ore with 62 percent iron content .IO62-CNI=SI, the
industry benchmark, fell 2.7 percent to $106.40 a tonne on
Tuesday, its weakest since Dec. 16, 2009, based on data from the
Steel Index.
Some potential buyers are so bearish about the outlook for
prices that they seek discounts of between $10-$15 from
index-based prices.
"It is very worrying. They are asking for far bigger
reduction in prices when they try to inquire for material," said
a Hong Kong-based trader.

Shanghai rebar futures and iron ore indexes at 0929 GMT

Contract Last Change Pct Change
SHANGHAI REBAR* 3557 -34.00 -0.95
PLATTS 62 PCT INDEX 108.75 -3.00 -2.68
THE STEEL INDEX 62 PCT INDEX 106.40 -2.90 -2.65
METAL BULLETIN INDEX 108.80 -2.77 -2.48

*In yuan/tonne
#Index in dollars/tonne, show close for the previous trading day
($1 = 6.3562 Chinese yuan)

(Editing by Himani Sarkar)