SINGAPORE, June 4: Spot iron ore prices rebounded after a decline of more than 10 percent last week lured some buyers back into the market, although further gains may be in doubt as top consumer China struggles with a soft steel sector.
China’s slow economic momentum has curbed steel demand, dragging both steel and iron ore prices to multi-month lows last week.
Shanghai steel futures steadied on Tuesday, after rising 1.5 percent in the previous session spurred by government data showing China’s factory sector continued to expand in May. A separate private-sector reading suggested otherwise, however, and the demand outlook is still not clear.
‘I’m seeing a bit of bullish sentiment coming back to the market which might motivate some traders to take more tonnages and take positions again,’ said a Hong Kong-based iron ore trader.
Benchmark 62-percent grade iron ore <.IO62-CNI=SI> rose 1.4 percent to $111.90 a tonne on Monday, according to data provider Steel Index, after hitting a near eight-month trough of $110.40 on Friday.
Iron ore fell 10.4 percent last week, its steepest weekly drop since October 2011.
Traders are eyeing a tender by Australian miner BHP Billiton of 61-percent grade MAC iron ore fines on Tuesday for pricing cues.
Price offers for Australian cargoes in China climbed by $3-$4 a tonne on Tuesday, with MAC fines quoted at $112, said Chinese consultancy Umetal.
The price gains are likely to be fleeting as soft steel demand in China may eventually prod mills to cut back on output.
‘Steel mills are still trying to keep their iron ore inventory low, so I don’t see strong restocking demand,’ said the Hong Kong trader. ‘We also might see significant production cuts ahead so mills are cautious in taking on cargo.’
China’s daily crude steel output has stayed above 2 million tonnes since mid-February, hitting a record 2.193 million tonnes in early May, based on industry estimates. That has helped depress steel prices since demand is slow, while mills have kept humming so producers can protect their market share.
‘As far as the mills are concerned, I think they feel that the situation has not gone worse enough to force them to cut production,’ said a trader in Shanghai.
The most-traded rebar contract for October delivery on the Shanghai Futures Exchange was little changed at 3,463 yuan ($560) a tonne by the midday break.
(AGENCIES)
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