Iron Ore-Index at 3-week top, new China measures may weigh

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Sep 2010

Iron ore spot prices rose to a three-week high, with forward swaps also gaining on improved sentiment in anticipation of a recovery in demand from top buyer China. But fresh property tightening measures in China could mean a short-term setback to both iron ore and steel prices, which collapsed after Beijing launched a slew of measures in April to curb its red-hot real estate market.
China on Wednesday announced new measures, including requiring a 30 percent downpayment from all mortgage applicants, to put a lid on bubbly property prices.
The news could see both iron ore and steel prices dropping again but the falls are unlikely to be as sharp as in April, said Macquarie analyst Graeme Train in Shanghai.
"This time it's not quite the same as in April because production had been moderated quite significantly and prices are at much lower levels.
"The immediate reaction would probably not be positive but it's not going to have a disastrous effect," said Train.
The Steel Index 62 percent iron ore benchmark .IO62-CNI=SI rose $1.30 to $140.80 a tonne, cost and freight, at the end of trade on Wednesday. It was the highest for the benchmark since Sept. 8.
Forward swaps also climbed, with the October contract SGXIOc2, cleared by the Singapore Exchange, rising $1.40 to $137.25 a tonne.
Top iron ore producer Vale of Brazil said on Wednesday it expects steel demand growth in China, the world's biggest market, to rebound by early 2011. Vale said Beijing's campaign to cut steel output to save energy has had a limited impact on iron ore demand.
Macquarie's Train agrees.
"We're certainly bullish on next year. The fundamental drivers of steel demand remain firmly in place, and you should see decent growth across a range of sectors.
"On the iron ore side, there doesn't seem to be a lot of supply coming to the market and the market should still be tight next year," he said.
In anticipation of a demand pickup, traders and analysts said Chinese steel mills which have been either shut down or told to slash output have begun resuming production.
At least four to five steel mills in Hebei's Wuan district have restarted production late last week, according to Hu Yanping, an analyst at Custeel.com who visited Wuan recently.
"The latest we're hearing is that in the Hebei region, mills have received restart orders and are now in the process of ramping back up," said Macquarie's Train.
"Definitely the worst of the electricity-related cuts are over," he added. Train estimates that the production cutbacks may have potentially cut China's overall output by just 5 million tonnes in September compared to August.
Chinese activity is expected to slow again with the country on a week-long public holiday from Friday.

Source: Reuters