SINGAPORE: Iron ore hovered near seven-week highs, lacking momentum to rise further with demand from top buyer China waning ahead of the Lunar New Year and blunting the impact of weather-related supply disruptions.
Offer prices for imported iron ore in China were unchanged on Friday, suggesting index-linked reference prices which global miners use in setting contract rates would remain steady.
Iron ore with 62 percent iron content was flat at $142.20 a tonne on Thursday, cost and freight delivered to China, according to Steel Index. The price touched $142.30 on Tuesday, the highest since Nov. 23.
Top iron ore producer Vale said on Thursday 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.
Vale has lost 2 million tonnes of production due to heavy rains in Brazil's southeast since around Dec. 25, less than 1 percent of its normal annual production of 300 million tonnes.
A cyclone in Australia has also shut major iron ore port terminals, forcing world No. 2 miner Rio Tinto to halt loading.
The supply problems were "not unexpected" since supply is usually down 10-15 percent in the first quarter of every year due to inclement weather, said Mark Pervan, global head of commodity research at Australia and New Zealand Bank.
But with slow demand from Chinese steel mills, the constricted supply is not causing prices to surge.
"The market is not reacting to the supply problems because nobody is buying cargo now," said an iron ore trader in Shanghai.
"We will probably see prices start to soften next week when many start travelling for the New Year holiday."
China's markets are shut for a week from Jan. 23 for the Chinese New Year.
SWAPS SAG
Prices of iron ore forward swaps fell sharply on Thursday, suggesting investors are betting on a further drop in spot rates.
The Singapore Exchange-cleared January contract lost more than $2 to $141.25 a tonne and February dropped $3.37 to $140.88.
Iron ore prices are unlikely to return to the $170-$190 range, after last year's "unsustainably strong" prices, said ANZ's Pervan. Iron ore hit a 2011 peak of $191.90 a tonne, touched in mid-February.
"We saw a bit of a ceiling in steel prices and if that's the case, iron ore prices can't go much higher when the industry is running at such skinny margins," he said.
"But I suspect steel prices will start to firm over the next 6-12 months and a lot of that will be due to the downstream customers having better access to credit."
The most-active May rebar contract on the Shanghai Futures Exchange slipped 0.1 percent to 4,217 yuan a tonne by the midday break, on track for a modest weekly rise.
China's annual inflation eased to its lowest in 15 months in December, giving the government more room to relax monetary policy, with some analysts predicting an interest rate cut in March.
"China's coming out of a tightening cycle and the growth is still very much industrial-centric so that's good for the iron ore market," said Pervan.
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