Shanghai rebar futures hit one-week lows on Tuesday as a deadly train accident over the weekend fanned investors'' concerns that China might slow the pace
of investment in high-speed railways, affecting steel demand in the near term.
A speed train crash in China that killed nearly 40 people has fueled market concerns about the safety of the country''s fast-growing rail network and cutbacks on investment.
"The train accident has affected steel rebar futures prices as investors are worried the government''s investment on railway projects may slow down," said Wang Dezhi, an analyst with China''s Orient Futures.
China has been working for years to develop a high-speed rail network to rival Japan''s famed bullet trains, making this one of the top targets in its plan for the five years to 2015.
"But the impact will be limited in the long term as the government-supported infrastructure construction will not be braked by one accident, so the hit to rebar prices may be short-lived," Wang added.
The most active October rebar futures on the Shanghai Futures Exchange fell as low as 4,873 yuan ($756) per tonne on Tuesday, their lowest since July 18, before regaining some ground to close up 0.4 percent at 4,898 yuan.
China''s commitment to build 10 million units of social housing this year will continue to lift steel demand in the second half of this year, though the government may encounter financial difficulties.
"We expect Chinese steel demand to remain robust, reflecting the social housing programme and the development of the central and western provinces," Commonwealth Bank of Australia (CBA) said in a research note.
But CBA also expressed concern that the lack of funding for the housing programme may pose a risk to expected strong steel demand in the second half.
"A potential risk to our outlook is the availability of credit to fund the housing programme," the bank said. "Presumably Chinese banks will eventually provide the necessary credit, but until this issue is resolved, it remains a risk."
ORE OFFERS FIRM, DEALS SOFTENING
Restocking by Chinese steel mills since early July may end soon, even though global indexes climbed to their highest in more than two months on Monday.
"Spot iron ore prices are standing firm this week, but I feel that transactions have slowed down as this round of restocking by steel mills has almost been completed and steel prices have also eased slightly," said an iron ore trader in coastal Shandong province.
Offers for 62-grade Newman fines from Australia were steady at $179 to $181 a tonne, including freight, on Tuesday and quotes for Indian 63.5/63 ore were also unchanged at $182 to$184, Chinese industry consultancy Umetal said, both steady for more than a week.
Despite traders and analysts being worried about steel prices, global iron ore indexes, tracking spot prices and used by top miners to set quarterly iron ore pricing, climbed to their highest in more than two months on Monday.
The Steel Index for ore with 62-percent iron content .IO62-CNI=SI edged up 20 cents to $175.30 a tonne, and the Platts index IODBZ00-PLT for similar gauge rose half a dollar to $177.25 a tonne, both reaching their highest since May 18.
Metal Bulletin''s 62-percent Fe iron ore index .IO62-CNO=MB extended gains by 63 cents to $174.89 a tonne, a level unseen since May 20.
Singapore Exchange-cleared iron ore swaps for contracts from July 2011 through December 2012 fell on Monday over the train accident worries, with contracts for August, October and November posting the biggest fall of $1.19 each.