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iron-oreSINGAPORE: Iron ore fell to its lowest since October and is pressured to drop further for the rest of the year, as Chinese mills limit purchases of spot cargoes at a time when colder weather curbs demand for steel.


Construction activity slows during winter in China, cutting demand for steel products, whose prices have fallen recently to levels last seen in September.


Appetite for spot iron ore cargoes has been thin since last week, dragging down the price of the benchmark 62-percent grade to $115.30 a tonne on Monday, its lowest since Oct. 19, based on data from Steel Index.


"Physical steel prices are weakening and this is having a spillover effect on iron ore. Fundamentals are very weak, construction has come to a complete stop in northern China," said a physical iron ore trader in Singapore.


"I remain bearish on iron ore, but I think spot prices would decline very slowly day by day. We will not see a sharp correction because iron ore is still in demand as steel mills are still producing."


China's steel mills have kept production close to 2 million tonnes a day for the most part of this year as producers responded to even modest rises in steel prices and counted on a pickup in consumption.


In mid-November, the country's daily crude steel output averaged 1.952 million tonnes, almost the same pace as earlier in the month, industry data showed last week.


"As inventories with steel mills are low, generally I don't expect a big fall in iron ore prices in the near future," said a Shanghai-based iron ore trader.


Inventories of iron ore at major Chinese ports continued to fall last week, standing at below 90 million tonnes, data from Chinese consultancy Steelhome showed.


Shanghai rebar futures jumped more than 2 percent in intraday trade on Monday after upbeat Chinese factory data spurred investors' hopes for a pickup in steel demand.


By midday Tuesday, rebar was little changed at 3,548 yuan ($570) a tonne, not far off two-month lows of 3,464 yuan reached last week.


Slower Chinese demand had dragged down iron ore prices to three-year lows below $87 in September, forcing top miners from Australia and Brazil to rethink expansion plans.


Brazil's Vale SA, the world's biggest iron ore producer, cut its 2013 capital spending by 24 percent to $16.3 billion amid a slower global economy that has slashed demand for its top product.


"The outlook for slower expansion of global demand for minerals and metals in the medium term requires rigid discipline in the allocation of capital and greater focus in maximizing efficiency and reducing costs," Vale said on Monday.


Copyright Reuters, 2012

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