Iron ore consolidates after rally, eyes on steel market

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Iron ore consolidated after a recent rally to its highest since November as Chinese buying interest paused along with gains in steel prices. Shanghai steel futures slipped on Thursday, after touching a 4-1/2-month high earlier this week as Chinese traders returned to the market after last week’s Lunar New Year holiday.

Iron ore for May delivery on the Dalian Commodity Exchange was up 0.4 percent at 342 yuan ($52) a tonne by 0243 GMT, after rising to a four-month peak of 343.50 yuan in the previous session.

On Wednesday, benchmark 62-percent grade iron ore for immediate shipping to China’s Tianjin port .IO62-CNI=SI slipped 0.7 percent to $45.80 a tonne, according to data compiled by The Steel Index (TSI). It touched $46.10 on Tuesday, its strongest since Nov. 16. As traders anticipate some pickup in steel demand in China, the world’s biggest consumer and producer, it is likely iron ore prices will not see sharp falls at least over the next two weeks, said an iron ore trader in Shanghai.

“We need to see how steel prices move, but I don’t think we’re going back to December levels anytime soon,” the trader said. The steelmaking raw material touched $37 a tonne on Dec. 11, its lowest since late 2008 when TSI began assessing prices. The price of rebar, a construction steel product, dropped 0.2 percent to 1,860 yuan a tonne on the Shanghai Futures Exchange, pulling away from Monday’s 4-1/2-month top of 1,880 yuan.

After falling for the past three years, iron ore prices regained some footing at the start of 2016, gaining around 7 percent so far. But analysts doubt any rally would be lasting due to shrinking Chinese steel demand and as big miners continue to boost output. “We expect China’s economic slowdown to persist over the medium term which will result in a further weakening of Chinese steel consumption due to declining demand from the country’s construction and transport sectors,” said Mitchell Hugers, analyst at BMI Research.

Hugers forecasts Chinese steel demand contracting by 1.5 percent this year.

On Wednesday, top iron ore miner Vale SA, began testing equipment at its $14.4 billion S11D mine at its Carajas complex in the Brazilian Amazon, its largest ever mine.

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