Dalian iron ore falls as restocking momentum seen waning


Chinese iron ore futures dropped for a second straight session on Monday, reflecting a market still struggling with a supply glut as a recent bout of restocking by steel producers may have ended.

Stocks of imported iron ore at China’s ports hit a new record high last week, piling renewed pressure on spot prices that are down nearly 30 percent for the year so far.

Iron ore for delivery in September on the Dalian Commodity Exchange eased 0.7 percent to close at 707 yuan ($110) a tonne, after falling to as low as 694 yuan earlier in the session.

“Mills were buying aggressively in the past weeks and that helped push up prices recently, but there’s too much cargo coming,” said a Shanghai-based iron ore trader.

“Supply is just overwhelming and I don’t think supply is going to go down. I have seen no sign.”

Inventory of imported iron ore sitting at 44 Chinese ports stood at 113.7 million tonnes as of July 4, up 1.05 million tonnes from the previous week, data from industry consultancy SteelHome showed.

That trumped the previous all-time high of 113.65 million tonnes reached during the third week of June, based on SteelHome data. The stockpiles have risen 31 percent this year and around half of the current inventories are iron ore cargoes imported from top supplier Australia.

Spot iron ore prices gained for a third straight week last week as Chinese steel mills and traders snapped up cargoes after the benchmark rate fell to a 21-month low of $89 a tonne in June.

The recovery has infused some market participants with optimism that iron ore has hit bottom and could benefit from an eventual pickup in Chinese steel demand amid signs that the world’s No.2 economy is regaining strength.

But prices levelled off on Friday, with the benchmark 62-percent grade .IO62-CNI=SI steady at $96.50 a tonne, according to Steel Index. That level, first touched on Thursday, was the highest since May 28.

Steel prices were also weaker on Monday. The most-traded rebar contract for delivery in January 2015 on the Shanghai Futures Exchange slipped 0.4 percent to 3,088 yuan a tonne.

“A sustained return to profitability in rebar production is a lynchpin for higher iron ore prices and it is difficult to see that in the current environment,” INTL FCStone analysts said in a monthly market outlook for July.

Production continues to rise while some Chinese steel firms are running at a loss, they said. China’s crude steel output rose 2.7 percent to 343 million tonnes in January through May, although apparent consumption only increased 0.1 percent to 313 million tonnes, the analysts noted.

“Given how much Chinese steel producers have struggled this year, we think the pressure will be on for additional capacity cuts or consolidation,” the report said.

Source from : Reuters