BHP Billiton

Iron ore at 2-week low as China demand slips, swaps down

PUBLISHED : Tuesday, 20 November, 2012, 2:29pm
UPDATED : Tuesday, 20 November, 2012, 2:32pm

Iron ore swaps dropped on Tuesday after spot prices hit two-week lows with demand from top buyer China losing steam after weeks of restocking, prompting miners to unload more cargoes onto the spot market before prices fall further.

Top miners Vale, Rio Tinto and BHP Billiton are together offering around 600,000 tonnes of iron ore at spot tenders closing today, traders said, far more than usual volumes.

The December swap contract cleared by the Singapore Exchange edged down to US$115.50 per tonne in early deals after falling more than a dollar to US$115.72 on Monday, brokers said.

Iron ore with 62 per cent iron content fell 1.2 per cent to US$122.25 a tonne on Monday, its lowest since November 6, according to data provider Platts.

Chinese steel mills had stocked up on iron ore over the past four weeks on hopes of positive policy signals from China’s 18th party congress. The meeting, however, ended last week without any indications of economic stimulus, said a physical iron ore trader in Singapore.

“And all this time, steel consumption has remained fundamentally weak, so now that mills are well stocked with iron ore, there’s no incentive to procure more spot cargoes,” the trader said.

“I believe sentiment will start to weaken from this point onwards,” he said, adding he expects the benchmark iron ore price to drop to US$115 in the near term.

Measured restocking

Before prices fall further, miners are unloading cargoes in the spot market at separate tenders on Tuesday, which traders expect to be sold at less than previous deals.

Vale is offering 155,000 tonnes of 60.74-per cent grade iron ore and another 90,000 tonnes of 63.63-per cent grade material, traders said.

BHP Billiton is selling 100,000 tonnes of 63-per cent Newman iron ore fines and 110,000 tonnes of 58-per cent Yandi fines, while Rio Tinto’s tender for 165,000 tonnes of 61-per cent Pilbara fines is also closing today, traders said.

“I guess no one wants to miss the boat so everyone will try and sell a lot today,” said Jamie Pearce, head of iron ore broking at SSY Futures.

Iron ore has rebounded from three-year lows below US$87 in early September, but price gains have since been capped at just above US$120, with any recovery in Chinese steel demand remaining fragile.

Shanghai rebar futures were up 0.3 per cent at 3,555 yuan (US$570) a tonne by the midday break, after briefly hitting a fresh seven-week low of 3,540 yuan. It fell nearly 3 per cent on Monday.

But after heavy destocking in recent months that had cut steel inventories at both traders and mills to 2-1/2-year lows, there is a potential for a restocking cycle in China’s steel sector, Commonwealth Bank of Australia said in a note.

“Any restocking in the steel sector is likely to be measured, though, thanks to Chinese banks rationing credit in the steel and iron ore sector,” the bank said.

China’s average daily crude steel output rose 1.6 per cent to 1.957 million tonnes for the first 10 days of November from the preceding period, industry data showed on Tuesday, as large mills lifted output on a recent rally in steel prices from September lows.