Iron ore back above $100, but steady steel may stall rally

Wed Sep 12, 2012 1:11am EDT

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* Shanghai rebar futures steady after recent big gains
    * Near-term Chinese steel demand still in doubt

    By Manolo Serapio Jr
    SINGAPORE, Sept 12 (Reuters) - Shanghai steel futures
steadied on Wednesday as excitement over the $158 billion worth
of infrastructure projects approved by China began to lose
steam, possibly stalling a rebound in iron ore prices that have
surged 15 percent over three sessions.
    The projects which involve building highways, ports and
airport runways are likely to take years, which means steel
demand from China, the world's top consumer, could remain
sluggish at least for the rest of this year. 
    The most-traded rebar for January delivery on the Shanghai
Futures Exchange eased 0.2 percent to 3,455 yuan ($550)
a tonne by the midday break. The contract fell 1 percent on
Tuesday after gaining 7 percent in the prior two sessions.
    Benchmark iron ore with 62 percent iron content
.IO62-CNI=SI rose 5.5 percent to $100.20 a tonne on Tuesday,
the first time in three weeks that it came back up to the $100
level, based on data from information provider Steel Index.
    Iron ore prices have risen by over $13, or 15.2 percent, in
the last three sessions -- reclaiming more than half of what
they lost in all of August -- after China announced the project
approvals on Friday.
    "Iron ore prices could continue to gain over the next week
or two, but I still question the long-term sustainability of
this given the weak steel fundamentals," said Rory MacDonald,
iron ore broker at Freight Investor Services.
    "For the rest of this year you're not going to see a great
deal of flow-through demand from those construction projects.
Therefore I don't think an iron ore rally has a hell of a lot in
it for the rest of this year."
    Jiangsu Shagang Group, China's largest privately-owned
steelmaker and the biggest producer of rebar, cut its list
prices for rebar for the second half of September by 60 yuan per
tonne, said a Singapore-based trader, pointing to a still tough
Chinese market.
    Spot steel billet prices in China's key Tangshan area also
dropped on Tuesday, traders said.
    MacDonald said iron ore prices are likely to hit resistance
levels at around $120, the previous support threshold breached
in July by a market rout fueled by slower steel demand in China
as the world's No. 2 economy sputters.
    "It's very much sentiment-driven at the moment. There's a
bit of restocking going on, but I don't see the fundamental
support for $5 gains a day," he said.
    Sellers of imported iron ore to China lifted price offers by
another $3-$9 per tonne on cargoes from Australia to Brazil and
India, according to industry consultancy Umetal.
    Also supporting sentiment, but not by a great deal, was
concern over supply disruptions after India's top iron ore
exporting Goa state temporarily halted iron ore mining from
Tuesday to check if operations were legal. 
    "We believe prices will rebound to average $131 in 2013
reflecting renewed steel demand in China capped by new low-cost
capacity coming online," Commonwealth Bank of Australia said in
a note.
          
  Shanghai rebar futures and iron ore indexes at 0446 GMT
                                                                                                  
  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN3                   3455     -6.00        -0.17
  PLATTS 62 PCT INDEX             101.75     +4.75        +4.90
  THE STEEL INDEX 62 PCT INDEX    100.20     +5.20        +5.47
  METAL BULLETIN INDEX            101.64     +5.52        +5.74
                                                                                                  
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
  
($1 = 6.3351 Chinese yuan)

 (Editing by Himani Sarkar)
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