SINGAPORE: Shanghai steel futures steadied on Wednesday as excitement over the $158 billion worth of infrastructure projects approved by China began to lose steam, possibly stalling a rebound in iron ore prices that have surged 15 percent over three sessions.
The projects which involve building highways, ports and airport runways are likely to take years, which means steel demand from China, the world's top consumer, could remain sluggish at least for the rest of this year.
The most-traded rebar for January delivery on the Shanghai Futures Exchange eased 0.2 percent to 3,455 yuan ($550) a tonne by the midday break. The contract fell 1 percent on Tuesday after gaining 7 percent in the prior two sessions.
Benchmark iron ore with 62 percent iron content rose 5.5 percent to $100.20 a tonne on Tuesday, the first time in three weeks that it came back up to the $100 level, based on data from information provider Steel Index.
Iron ore prices have risen by over $13, or 15.2 percent, in the last three sessions -- reclaiming more than half of what they lost in all of August -- after China announced the project approvals on Friday.
"Iron ore prices could continue to gain over the next week or two, but I still question the long-term sustainability of this given the weak steel fundamentals," said Rory MacDonald, iron ore broker at Freight Investor Services.
"For the rest of this year you're not going to see a great deal of flow-through demand from those construction projects. Therefore I don't think an iron ore rally has a hell of a lot in it for the rest of this year."
Jiangsu Shagang Group, China's largest privately-owned steelmaker and the biggest producer of rebar, cut its list prices for rebar for the second half of September by 60 yuan per tonne, said a Singapore-based trader, pointing to a still tough Chinese market.
Spot steel billet prices in China's key Tangshan area also dropped on Tuesday, traders said.
MacDonald said iron ore prices are likely to hit resistance levels at around $120, the previous support threshold breached in July by a market rout fueled by slower steel demand in China as the world's No. 2 economy sputters.
"It's very much sentiment-driven at the moment. There's a bit of restocking going on, but I don't see the fundamental support for $5 gains a day," he said.
Sellers of imported iron ore to China lifted price offers by another $3-$9 per tonne on cargoes from Australia to Brazil and India, according to industry consultancy Umetal.
Also supporting sentiment, but not by a great deal, was concern over supply disruptions after India's top iron ore exporting Goa state temporarily halted iron ore mining from Tuesday to check if operations were legal.
"We believe prices will rebound to average $131 in 2013 reflecting renewed steel demand in China capped by new low-cost capacity coming online," Commonwealth Bank of Australia said in a note.
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