* China mills cut iron ore stocks to below 20 days -
* Shanghai rebar has worst month in nearly a year
(Updates price, add comments)
By Silvia Antonioli and Manolo Serapio Jr
LONDON/HONG KONG, Aug 31 Iron ore rebounded
slightly on Friday but remained near a three-year low and posted
its worst month since October 2011 as demand for new shipments
from Chinese steelmakers remained weak.
The steel ingredient has been the hardest hit among
industrial commodities by China's slowdown, losing 36 percent
this year as demand fell after steel prices plunged.
Iron ore with 62 percent iron content, the industry
benchmark, rose 0.8 percent to $89.40 per tonne on Friday,
according to data provider Steel Index.
It was its first rise in two weeks, but left iron ore close
to its lowest level in almost three years. In August prices fell
more than 24 percent in their biggest fall since last October.
"The sentiment is still negative but it seems that the
market is a little more steady than last week," said a UK-based
iron ore trader, adding that iron ore offers from a major
producer on Friday where at a similar price level to the two
"I think from now on the fall will slow up. It's a bit too
early for a rebound but I don't think there will be drops as big
and as sharp as last week, now."
Analysts said the price developments will also depend on the
iron ore industry response to weak demand and lower prices.
"If everyone keeps producing iron ore we can expect to see a
sharp fall in the short term before a rebound," said Hatch iron
ore consultant David Tucker.
"My analysis suggests that we are already seeing a supply
side response from Chinese domestic producers and this will
increase if prices fall further."
Another key element is the steel production rate in China.
Crude steel output in the top producer and consumer of the
alloy has hit record high levels this year but a steep decline
in steel prices and profitability is now pushing mills to cut
their production levels.
Data shows that China's average daily crude steel output
fell 2 percent between August 11-20 compared with the first 10
days of the month and steelmakers have also cut their iron ore
Smaller Chinese steel mills had cut their inventories to
about 17-18 days worth of consumption, versus 27-30 days over
the past year, according to Graeme Train, analyst at Macquarie
He said the "absolute minimum" inventory would be 14 days,
which is about the period it takes for cargo imported from top
exporter Australia to reach China.
"There's potential for the mills to destock further, so we
could see prices go down to $75-$80," he said.
Shanghai steel rebar futures have dropped about 17
percent this year, less than half the percentage loss for iron
Shanghai rebar fell nearly 10 percent this month, the
steepest drop in almost a year, as losses extended to a fifth
In the face of weak steel demand, most Chinese mills have
kept their iron ore inventories low, with some opting to buy
small lots from port stockpiles instead of ordering fresh, big
China's imported iron ore inventories fell slightly this
week but remained at a high level.
Brazil's Vale SA, the world's top iron ore miner,
said it was surprised that prices had fallen below $110 per
tonne, which it attributed to excess supply rather than weak
Jose Carlos Martins, who runs Vale's iron ore business,
however, said the company's production costs were still well
below current prices.
"We are one of the most efficient producers," he said. "We
will be the last to leave the market."
(Editing by Jason Neely)