Chinese iron ore futures fell to their lowest level in six weeks on Friday, pressured by expectations that supply would remain high while demand for steel in the world's biggest consumer barely grew in the first half of the year. China's apparent steel demand rose 0.4 percent to 376 million tonnes in January-June, the China Iron and Steel Association (CISA) said. Inventories held by large steel mills rose in June after a three-month decline, the association said, underlining slow consumption.
Iron ore for January delivery on the Dalian Commodity Exchange touched a session low of 670 yuan ($108.45) a tonne, its weakest since June 20. It closed down 0.9 percent at 672 yuan. The most-traded January rebar contract on the Shanghai Futures Exchange slipped 0.2 percent to 3,067 yuan a tonne.
Investors found no joy in more evidence of strength in the Chinese economy after a spate of stimulus measures. China's factories posted their strongest growth in at least 1-1/2 years in July as new orders surged to multi-month highs, two surveys showed. China buys around two-thirds of the world's iron ore and supply of the steelmaking raw material has exceeded demand this year. Iron ore supply in China outpaced demand by 52 million tonnes in the first half of 2014, according to CISA.
Benchmark 62-percent grade iron ore for immediate delivery to China eased 0.3 percent to $95.60 a tonne on Thursday, according to data compiler Steel Index which said mills retreated from the market. The price rose 1.9 percent in July, its second straight monthly gain.
The price of the commodity that is the biggest revenue earner for global miners Vale and Rio Tinto has recovered from a 21-month low of $89 reached in June, but has struggled to bounce back to $100 since falling below that level in mid-May. "Business is really tight right now and we're hardly making any margin," said a Shanghai-based iron ore trader, adding he has traded only two cargoes in July. Top miner Vale expects Chinese demand for iron ore to rise in the second half of the year, but its head of iron ore business Jose Carlos Martins said the company will focus less on the price and more on its capacity to deliver volumes and cut costs.
Weaker iron ore prices were largely behind a 43 percent decline in Vale's second-quarter net profit even as the miner increased production to a record 79.45 million tonnes. ArcelorMittal, the world's largest steelmaker, cut its forecast for earnings this year as lower iron ore prices ate into the profit of its mining business. It adjusted its assumption for iron ore prices to $105 per tonne from $120 previously. "Buying interest continues to be sluggish as mills expect Australian supply to be plentiful in August, despite a marginal fall in port stocks in July," Australia and New Zealand Bank analysts said in a note.
"With more than 110 million tonnes of stocks at Chinese ports, upside is expected to remain limited in the near term." ANZ cut its price forecasts for iron ore for this year and next by 5 percent to $104 and $101, respectively, citing faster-than-expected supply increase from Australia. It sees iron ore at $95 in 2016, 3 percent lower than a prior estimate. The inventory of imported iron ore sitting at Chinese ports fell to 111.95 million tonnes on July 25 from 113.60 million tonnes the previous week, based on data compiled by SteelHome, which tracks stocks at 44 ports.
Source: Reuters
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