UPDATE 1-Iron ore steadies, but China buyers may resurface

* Iron ore has room to rise to $125/tonne -trader
* Shanghai rebar posts modest weekly gain

(Updates rebar price, adds ArcelorMittal)
By Manolo Serapio Jr
SINGAPORE, Oct 19 (Reuters) - Spot iron ore prices steadied
on Friday, but may end the week with modest gains that could
stretch to next week, when buyers resume purchases on
expectations that Chinese steel mills will keep up strong
production.
Price offers for imported iron ore cargoes in top consumer
China were little changed, although quotes for Brazilian
material rose by a dollar per tonne, according to Beijing-based
consultancy Umetal.
Benchmark iron ore with 62 percent iron content
.IO62-CNI=SI was nearly flat at $115.50 a tonne on Thursday,
based on data from Steel Index.
"Chinese mills are still looking to procure iron ore. They
are running low on inventory due to the massive destocking that
took place in July-August and they need to have some cargo on
hand," said a physical trader in Hong Kong.
While mindful of prices, traders say Chinese steel producers
need to stock up on the raw material to sustain output that has
remained strong in September, either backed by seasonal demand
or hopes for demand to pick up gradually.
China's average daily crude steel output stood at 1.932
million tonnes last month, up 2 percent from August and not too
far off record highs above 2 million tonnes earlier this year.

China is the world's largest steel consumer and producer and
its legion of mills prefer to run production plants at or near
full capacity even at razor-thin margins to keep their market
share in a highly fragmented sector.
"While we will see some correction, I think iron ore has
room to firm some more, $125 is likely," the trader said.

NO HARD CUTS
But Pranay Shukla, senior dry bulk analyst at Mercuria
Energy Trading, sees lower Chinese steel production in the
current quarter, which should limit demand for iron ore.
"Steel mills now have cheaper products than a few months
ago, due to restocking on recent low prices, so the question
comes down to how much they will cut production," Shukla said.
"I think they will reduce it seasonally, but no hard cuts,"
he said, that adding slower Chinese steel output could lead to
"flattish" iron ore prices.
In the physical market, top iron ore miner Vale
is offering 250,000 tonnes of 65-percent grade Brazilian Carajas
iron ore fines at a tender closing later on Friday, traders
said, adding that the cargo was due to pass Singapore on Nov. 19
en route to China.
Iron ore is up less than 1 percent for the week so far. So
were Shanghai rebar futures, which mills and traders also track
for signs of Chinese steel demand that has been sluggish through
most of this year due to a slowdown in the world's No. 2
economy.
The most active rebar contract for May delivery on the
Shanghai Futures Exchange closed down 0.7 percent at
3,651 yuan ($580) per tonne, but rose 0.3 percent for the week.
In industry news, ArcelorMittal, the world's
largest steelmaker, is exploring the sale of a minority stake in
its Canadian iron ore business, sources familiar with the
situation said. A deal is likely to be announced before the end
of the year, one of the sources said.
ArcelorMittal is one of Canada's top exporters of iron ore
and its operations account for about 40 percent of Canada's iron
ore output.

Shanghai rebar futures and iron ore indexes at 0739 GMT

Contract Last Change Pct Change
SHFE REBAR MAY3 3651 -24.00 -0.65
PLATTS 62 PCT INDEX 117 +0.50 +0.43
THE STEEL INDEX 62 PCT INDEX 115.5 +0.10 +0.09
METAL BULLETIN INDEX 117.04 +0.76 +0.65

Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day

($1=6.2503 Chinese yuan)

(Editing by Clarence Fernandez)