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iron-oreSINGAPORE: Spot iron ore touched six-week lows as demand from top buyer China declined in tandem with falling steel prices, putting the raw material on course for its first monthly loss in three.


Shanghai steel futures fell to their weakest since September on Friday and have dropped nearly 4 percent this month as China's winter curbed construction activity and the need for steel.


The most active May rebar contract on the Shanghai Futures Exchange was up half a percent at 3,484 yuan ($560) a tonne by the midday break, after slipping to a low of 3,464 yuan, the weakest since Sept. 21.


Construction-used rebar is down almost 3.5 percent for all of November, snapping two months of gains.


China's capacity glut, long blamed for eating into steelmakers' margins, is exacerbating the usual winter lull, weighing on prices even more.


"What we have seen is that overcapacity has actually got worse, especially for long products, and I see no change in policies to try to fix that," said Xu Zhongbu, chief executive of Beijing Metal Consulting, which advises big state steel firms on technology.


"In the next year environmental protection regulations will be stricter - we now have this beautiful China policy - but this isn't going to address the overcapacity issue because it won't be difficult for these small guys to replace their equipment and meet the new guidelines."


With a weaker steel market, there is less incentive for Chinese mills to buy raw material iron ore, driving down spot prices all this week.


Benchmark iron ore with 62 percent iron content fell nearly 1 percent to $116.90 a tonne on Thursday, its lowest since Oct. 19, according to data provider Steel Index.


For November, iron ore is down 2 percent, after surging more than 30 percent over the past two months.


The price could drop further towards $110 next week, said a Shanghai-based trader.


"Some mills are still seeking cargoes but they prefer only those already at sea whose owners would be eager to sell at lower prices. There is no big interest for cargoes due in January," he said.


 Miner Rio Tinto sold a cargo of 61-percent grade Australian Pilbara iron ore fines at $118.88 a tonne at a tender on Thursday, a dollar lower than a previous deal, traders said.


Vale sold 65-percent grade material at $123.01 per tonne, more than $3 less than before, traders said.


"The Chinese are taking their foot off the gas on the tenders," said Jamie Pearce, head of iron ore broking at SSY Futures, who expects iron ore prices to be rangebound towards year-end as activity winds down.


Weaker steel demand in winter, high steel output and the unwillingness of steel traders to restock due to tight capital will keep China's steel market under pressure, according to a report by the country's midsized steelmakers published on the website of industry group China Iron and Steel Association.

Copyright Reuters, 2012

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