BEIJING, Apr 16: Shanghai steel futures declined further on Tuesday on lingering worries about China’s economy and weak U.S. State manufacturing data, but traders said iron ore purchases remained slow but steady in the mainland, the world’s biggest consuming nation.
The most-traded rebar contract for October delivery on the Shanghai Futures Exchange ended the session at 3,732 yuan ($600) a tonne, levelling off from a session low of 3,665 yuan — its worst showing since early December — but still down 0.69 percent from the previous close. They fell 1.9 percent on Monday.
While iron ore prices have remained stable, the weakness in rebar futures is likely to have an impact eventually, said Peter J. Cho, an iron ore derivatives broker with ICAP in Singapore.
‘I think iron ore prices this month will remain stable, but as rebar continues to be weak, iron ore cannot maintain at these levels and there is a lot of steel inventory to work through before we see price increases,’ he said.
China’s annual GDP growth reached 7.7 percent in the first quarter, the country’s statistics bureau revealed on Monday, deflating market expectations and leading to a wide-ranging commodity sell-off.
And the pace of growth in New York state manufacturing slowed more than expected in April as new orders tumbled, the latest data to suggest the U.S. Economy lost some steam heading into the second quarter, data from the New York Federal Reserve showed on Monday.
The 19-commodity Thomson Reuters-Jefferies CRB index , a globally watched indicator, fell 2.2 percent on Monday for its sharpest one-day loss since December 2011, ending at its lowest level since the end of June 2012.
IRON ORE HOLDS GROUND
The short-term reaction to the data has added to the anxieties in the Chinese steel sector, with demand uncertain and overproduction continuing to sap prices.
An iron ore trader in Beijing described the market as ‘neither dead nor alive’ and that business had been weak since the beginning of the year.
But a manager at a trading firm based in southern China said while buying was still slow, he was still confident demand was on an upward trajectory and that prices would remain steady.
‘I have been talking to steel mills every day trying to make sales and the market isn’t so good right now, but the prices are still stable, which is a good thing,’ he said.
‘We have just bought 150,000 tonnes from Brazil and we already have a buyer — what we see is that the big steel mills are still buying and it is the smaller mills that are very cautious right now.’
Benchmark 62 percent grade iron ore <.IO62-CNI=SI> was steady on Monday, dipping less than 0.1 percent to $140.9 per tonne, according to data provider the Steel Index.
Hopes that China’s economy was on its way to a full recovery had pushed steel output up to 191.75 million tonnes in the first quarter of this year, which on an annualised basis would amount to an 8.5 percent increase compared to the whole of 2012.
But there have already been signs that underlying steel demand has not risen to match the surge in output, with steel product stocks in 22 cities hitting a record 15.56 million tonnes in March, according to data from the China Iron and Steel Association.
Analysts and traders expect Chinese steel output to remain at more than 2 million tonnes a day in the coming months, traditionally the peak consumption period, but mills remain wary about making any big iron ore purchases.
‘Chinese mills will continue production levels but iron ore prices are still too high for restocking,’ said Cho. Shanghai rebar futures and iron ore indexes at 0331 GMT (AGENCIES)
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ECONOMY-SRILANKA-LEAD RATES
Sri Lanka holds rates steady, keeps door open to ease as inflation slo
COLOMBO, Apr 16 (Reuters) Sri Lanka’s central bank kept key monetary policy rates unchanged for a fourth straight month on Tuesday, but left the door open to easing later in the year as inflation is expected to slow further.
As expected, the bank left the repurchase rate and the reverse repurchase rate at 7.50 percent and 9.50 percent, respectively. It also kept the commercial banks’ Statutory Reserve Ratio (SRR) steady at 8 percent.
‘Monetary policy measures taken so far indicate that expected results are being realised, providing reasonable stimulus for a higher economic growth,’ the central bank said in a statement.
‘At the same time, further deceleration of demand-driven inflation on a sustainable basis would provide space for further easing of monetary policy.’
The island nation’s year-on-year inflation rate in March eased to 7.5 percent from a near-record high of 9.8 percent a month ago due to the improved supply of vegetables and a high base last year.
The central bank estimates April inflation at 6.3 percent and has said it could creep up slightly if the government raised power tariffs.
A Reuters poll had correctly forecast that both rates would remain unchanged from the current levels, after slashing them from their highest in three years.
In December, the central bank surprised markets by cutting both money market rates by 25 bps, its first easing in nearly two years, lowering them from three-year highs to boost faltering economic growth as inflation pressures were expected to ease.
‘We felt it was not the right time to ease policy rates,’ Central Bank Governor Ajith Nivard Cabraal told Reuters on Tuesday. We have just begun to see the effect of the rate cut in December. So we thought of allow the trend this month.’
Sri Lanka’s Treasury Secretary P.B. Jayasundera last week said official interest rates are expected to decline during May and June as the borrowing needs of loss-making state-run energy enterprises recede.
The central bank also said it expects the 2013 balance-of-payments to improve further with the increases seen in foreign currency inflow.
(AGENCIES)
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