SHANGHAI: Chinese spot iron ore prices fell $2 per tonne on Friday, bringing major indexes to a two-month low with steel mills relying more on domestic supplies to ramp up production ahead of the summer season.
Indian ore with 63.5/63 percent iron content was quoted at $178-180 per tonne, including freight, on Friday, from $180-182 on Thursday, according to Chinese consultancy Umetal.
"Steel mills are bearish on steel prices in June and July, and are not interested in making bookings," said an iron ore trader in Shenzhen.
Small- and medium-sized steel mills have preferred to raise their consumption of domestic iron ore to lower costs, and expect iron ore import prices to fall further as power shortages and tightening credit cuts steel output in the months ahead.
"Many mills have raised their use of domestic iron ore to 35 percent (among the total consumption) from 10 percent before as they don't want to risk to buying forward shipments," the trader added.
Key iron ore indexes, which track spot prices in China and are used by global miners like Vale and Rio Tinto in setting quarterly contracts, sank to a near two-month low on Thursday.
The Steel Index's 62 percent iron ore benchmark declined $1.7 to $171.3 per tonne, and Platts' 62 percent index closed $1.25 lower at $172.75 a tonne.
Metal Bulletin's 62 percent benchmark dropped $0.84 to $171.65 a tonne.
Australia miners have tried to increase supplies to China by lowering offers in order to attract steel mills and traders, market sources said.
Newman fines with 62.5 percent iron content was quoted at around $176 per tonne, including freight, on Thursday, down $2 from mid-week, a second trader said.
Chinese steel mills have stepped up production for months, bringing daily crude steel output to a slew of record highs amid concerns that industrial users will bear the brunt of any power rationing policies in the coming months.
Data from the China Iron & Steel Association showed that China's daily crude steel output hit another record of 1.984 million tonnes in the middle 10 days of May, up 1.9 percent from the preceding 10 days.
Worsening power shortages in China in summer may hit production by small- and medium-sized steelmakers, which don't have electricity generators, denting demand for iron ore in the coming quarter.
Iron ore swaps cleared by the Singapore Exchange fell on Thursday after a series of gains over previous sessions.
The June contract slumped $3.18 to $166.94 per tonne and July lost $2.25 to $165.06 per tonne.
Copyright Reuters, 2011
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