UPDATE 2-Iron Ore posts biggest ever gain on China building plan

Mon Sep 10, 2012 12:56pm EDT

Related Topics

* Iron ore rises over 6.7 pct, sellers up offers

* China Aug iron ore imports hit 3-month high (Updates iron ore prices, adds comments from Europe)

By Manolo Serapio Jr and Silvia Antonioli

SINGAPORE/LONDON, Sept 10 (Reuters) - Spot iron ore posted its biggest one-day gain on record on Monday and China steel futures rose sharply for a second day, supported by hopes Beijing's approval of more than $150 billion in infrastructure projects would resuscitate steel demand.

Offer prices for imported iron ore cargoes in China rose over the weekend and the benchmark rate .IO62-CNI=SI jumped by $6, or 6.7 percent, to $95 a tonne on Monday, based on data from information provider Steel Index.

This is the biggest rise ever recorded by the Steel Index, which started assessing spot iron ore prices in April 2009.

"There's more interest now from buyers to get iron ore cargoes even at prices slightly higher than previous deals. Sentiment's better," said an iron ore trader in Shanghai.

China's economic planning body on Friday approved projects to build highways, ports and airport runways, that analysts estimate at more than 1 trillion yuan ($158 billion), roughly a quarter the size of the massive stimulus package unleashed in response to the global financial crisis in 2008.

Shanghai rebar futures surged by their 5 percent limit on Friday on the news, and spot iron ore rose more than 2 percent.

On Monday, the most-traded rebar contract for January delivery on the Shanghai Futures Exchange hit a two-week high of 3,508 yuan a tonne. It closed up 2.7 percent at 3,497 yuan.

"I guess the market's divided now. Half expect the price gains to continue while the other half are still pessimistic," said another Shanghai-based trader.

European traders said sentiment had improved on the back of the planned infrastructure spending but many warned the price rise might be temporary as the amount is smaller than previous ones and it would take time before these plans were implemented.

"The news of a trillion yuan being injected into infrastructure spent in China was the biggest catalyst for today's jump to the upside. Compared to 2009 though when nearly 15 trillion was injected, this is small cheese," London Dry Bulk, an iron ore brokerage, said in a report.

"When you take a step back and look at this, it is not really that significant and this could be just a knee jerk reaction. Perhaps prices will continue to fall further after the dust settles."

BHP Billiton is selling more cargoes at a tender on Monday - 100,000 tonnes of 62.7-percent grade Australian Newman iron ore fines and 90,000 tonnes of 57.7-percent grade Yandi fines, traders said.

Brazil's Vale, the world's top iron ore miner, is selling two cargoes - 134,000 tonnes of 63.36-percent grade iron ore lumps and 176,000 tonnes of 64.98-percent grade Carajas fines, said traders.

Traders expect prices at both tenders to rise further.

CHINA IMPORTS RISE

"We would take this chance to clear our stocks at higher prices. We already received offers that are 30 to 50 yuan higher than the last offers," said the first trader.

Despite the firmer offers, he said the prices were still about $10 less than the purchase price of the cargoes, totalling about 200,000 tonnes.

The second trader said he had yet to hear from clients and doubted whether the iron ore price rise would last.

Before this rebound, iron ore and steel prices were in a downward trajectory, with iron ore hitting a near three-year low of $86.70 a tonne on Sept. 5 and Shanghai rebar futures reaching a record low of 3,206 yuan on Sept. 6.

China's imports of iron ore in August rose 7.9 percent from the previous month to a three-month high of 62.45 million tonnes, data showed on Monday, with buyers turning to the international market as a collapse in prices forced domestic producers to slash output.

"Imports stayed high in August because these orders were made in July or earlier. But this certainly implies that there's oversupply in China," said Helen Lau, senior commodities analyst at UOB-Kay Hian in Hong Kong.

"We think iron ore prices are still under downside pressure and we maintain our view that in the coming months, iron ore imports will come down to around 30 million to 40 million tonnes. China has a high iron ore inventory, steel production has peaked and demand is weak."

($1=6.3430 Chinese yuan) (Editing by Clarence Fernandez and James Jukwey)

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