Iron ore may rise on firmer China steel, upside seen capped

Publish time: 23rd October, 2012      Source: ChinaCCM
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Spot iron ore prices were steady on Monday but were likely to rise later in the week as firmer steel prices in top consumer China encourage mills to produce more of the building material.
Seasonal demand during the month when some construction activity takes place has buoyed Chinese steel prices, although gains have been limited with overall end-user demand still largely tepid.
The most active rebar contract for May delivery on the Shanghai Futures Exchange rose 41 yuan, or 1.1 percent, to 3,692 yuan ($590) per tonne by the midday break.
The price of steel billet in China's key Tangshan area rose 10 yuan to 3,250 yuan a tonne on Monday after slipping over the weekend, traders said.
"I think we will see steel prices between 3,200 and 3,300 yuan until mid-November, probably enough to keep steel production going higher and mills seeking iron ore," said a Shanghai-based iron ore trader.
Price offers for imported iron ore cargoes in China were little changed on Monday, as sellers took their cue from nearly flat prices at the end of last week.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI slipped 0.2 percent to $115.30 a tonne on Friday, ending last week with a modest 0.7 percent gain, according to data provider Steel Index.
"Chinese mills are not really in a hurry to buy anything at the moment, but the currently firm steel prices should push some mills to buy iron ore," said another trader in Shanghai.
"But I don't expect the price to go beyond $120, because once it hits that level again, mills would turn cautious."
The last time prices touched $120, which was seen as the support level earlier because it was deemed the production cost for high-cost iron ore producers from China, was in July.
China's economic slowdown caused prices to hit three-year lows below $87 in early September, before recovering to above $100 since then.
China's iron ore production hit its highest in 11 months in September, official data showed on Monday, as a rebound in prices of the steelmaking raw material encouraged small privately owned miners to resume output.
But the increased output is unlikely to cut China's reliance on imports, given the low grades of domestic iron ore. Raw iron ore in China has about 15 percent iron content on average compared to around 60 percent for material found in Australia and Brazil.
In the physical market, top iron ore miner Vale is selling 170,000 tonnes of 65.04-percent grade Brazilian Carajas iron ore fines at a tender closing later on Monday, traders said.
Traders expect the cargo to be priced at levels around $125.21 per tonne, the price at which Vale sold a 250,000-tonne shipment on Friday with a similar specification.