Iron ore stretches losses on risk of more China steel closures

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Iron ore futures in China and Singapore dropped on Tuesday, extending recent losses on fears of more Chinese steel producers shutting, which could deepen a glut in the raw material.

Weak demand and tighter anti-pollution measures threaten to close more mills in China’s top steel producing Hebei province either temporarily or permanently, said Helen Lau, an analyst at Argonaut Securities in Hong Kong.

“On the other hand, there’s no sign of the big iron ore miners cutting production. They’re even raising exports to China,” said Lau, referring to top suppliers from Australia and Brazil. Iron ore for May delivery on the Dalian Commodity Exchange was down 1.8 percent at 303 yuan ($46) a tonne by 0324 GMT, after hitting a low of 301.50 yuan, a level last seen on Dec. 23.

On the Singapore Exchange, February iron ore fell 0.8 percent to $37.06 a tonne. That suggests further weakness for spot prices that have dropped back near $40 a tonne. Iron ore for immediate delivery to China’s Tianjin port .IO62-CNI=SI slid 1.5 percent to $40.90 a tonne on Monday, according to The Steel Index (TSI). The spot benchmark fell to $37 in December, the lowest recorded by TSI which began compiling data in 2008.

The decline in Dalian futures has undermined confidence in the spot market, TSI said, with transactions few and far between. As Chinese mills cut output in response to slow demand, traders are similarly running down their stocks instead of replenishing as they did in past years in anticipation of demand picking up after the Lunar New Year in February, said Lau.

The inventory of five major steel products held by Chinese traders stood at 8.56 million tonnes as of Jan. 8, according to consultancy Mysteel. That is the lowest level since February 2009, said Lau. “This shows that traders have no confidence in future demand,” she said.

The production cuts have barely supported steel prices. The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange slipped to a two-week low of 1,740 yuan a tonne on Tuesday.

[reuters]

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