Spot iron to tread water as China holiday nears

SINGAPORE: Iron ore prices may edge lower this week as buyers in top importer China skip the spot market with activity winding down ahead of the Lunar New Year next week.

"Many steel mills have already finished restocking, so there'll probably be almost no deals this week and prices will be stable to slightly weaker," said an iron ore trader in the port city of Rizhao in China's eastern Shandong province.

Offer prices for imported cargo in China were unchanged on Monday, said Chinese consultancy Umetal.

Most traders are also unlikely to sell cargoes this week, and opt to wait until the Chinese return after the week-long holiday that starts Jan. 23.

"We still have 60,000 tonnes of high-grade iron ore fines and we intend to sell after the holiday because people are expecting prices to increase then," the trader said.

Iron ore with 62 percent iron content was steady at $142.20 a tonne, cost and freight delivered to China, on Friday, according to the Steel Index, ending last week 1.6 percent higher.

"Demand is currently limited, with buying activity in China slow ahead of the Lunar New Year holiday. Mills were said to already be in festive mode," the Steel Index said in a note.

Also restraining interest in iron ore is steady steel prices, reflecting slow demand in China.

But traders and analysts expect steel prices to pick up over the next six months on hopes Beijing would ease monetary policy to support economic growth.

The most-active May rebar contract on the Shanghai Futures Exchange was little changed at 4,227 yuan a tonne by the midday break, with volume traded at a lean 159,876 lots.

Slack Chinese demand has offset the impact of supply disruptions in top iron ore exporters Australia and Brazil last week.

Vale said the heavy rains that prompted it to cut production in Brazil and declare force majeure on shipments will have minimal effect on global iron ore supply and prices.

CSN, Brazil's second-largest iron ore exporter after Vale, said on Friday it may halt shipments because the rainy weather hampered its mining operations.

Australia's Port Hedland, one of the world's largest export terminals for iron ore, reopened on Friday after being shut ahead of a tropical cyclone that has since been downgraded to a storm.

China on Monday launched its first physical iron ore trading platform in a further move to strengthen its pricing power over the sector dominated by foreign miners.

China's major steel mills -- Baosteel, Hebei Steel, Wuhan Steel, Shougang and Angang -- as well as large iron ore traders including China Minmetals and Sinosteel have already agreed to become sponsor members of the online platform provided by the China Beijing International Mining Exchange.

The exchange, which was earlier eyeing to launch the platform in December, set it up along with the China Iron and Steel Association and the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters.

So far, none of the big foreign iron ore suppliers have joined, officials said.

Copyright Reuters, 2012