SINGAPORE (Reuters) – China steel futures dropped for a fifth time in seven sessions onTuesday as weak demand in the world’s biggest consumer kept pricesunder pressure, curbing appetite for iron ore which has fallenalmost 10 percent so far this month. News that the Chinese government will speed up its approval ofinfrastructure investments to buoy growth and its sluggish propertysector provided little relief to investors at a time when bothsteel producers and traders are wary of taking up iron ore cargoes,dragging down prices to the lowest in nearly six months. “It looks like we’re shaping up for a bit more pain in the shortterm,” said Rory MacDonald, iron ore broker at Freight InvestorServices. Chinese buyers are deferring or have defaulted on deliveries ofiron ore as well as coal, after a recent slide in prices withBeijing’s appetite for commodities slowing along with its economy. Square Frying Pan
The most-traded rebar contract for October delivery on the ShanghaiFutures Exchange eased 0.2 percent to 4,082 yuan ($650) a tonne bythe midday break. Construction-used rebar fell for a fifth straight week last weekand is down nearly 5 percent so far in May. The surplus of steel in the market is helping drag down prices asChinese mills continue to produce at record rates to keep theirmarket share in China’s highly fragmented sector. “Steel mill margins have really come to very, very thin levels andpart of the problem is the Chinese just don’t seem to cut back onsteel supply which just exacerbates the problem,” said PatrickCleary, steel analyst at Wood Mackenzie. China Ceramic Coating Fry Pan
While the strategic nature of the Chinese steel industry isunlikely to change in the near term, Cleary said a sustained fallin iron ore prices fueled by the bearish sentiment could help easethe pressure on margins. HAND TO MOUTH The weakness in the steel market meant there was little buyinginterest for fresh seaborne cargoes, with mills opting for cheaperiron ore stockpiled at Chinese ports. “It’s all very hand to mouth at the moment and they can largelyfeed themselves from what’s at the ports or by scaling back thevolume that they’re taking on contract,” said MacDonald, whoestimates that port stocks are around $5-$6 per tonne lower thanfresh seaborne cargoes on average. Benchmark iron ore with 62 percent iron content .IO62-CNI=SI fellfor a 10th consecutive day on Monday to hit $130.90 a tonne, itslowest since November 2011, according to data from the Steel Index. That was its longest losing streak since a 15-day slide in Octoberwhen iron ore slumped nearly 31 percent for the month and forcedmills to defer deliveries. Square Frying Pan Manufacturer
Given ample supply of iron ore in the spot market, MacDonald saidhe thinks prices may drop by another $5 per tonne “in the veryshort term”. Before its descent, iron ore hit this year’s high of $149.40 inmid-April as traders bet on a seasonal uptick in China’s steeldemand in the current quarter that has not come. Still, top miners continued to unload cargoes in the spot market,with BHP Billiton BLT .L selling 190,000 tonnes of a combined cargo of Newman ironore fines and MAC iron ore lumps at a tender on Tuesday, said aSingapore-based trader. Vale sold 170,000 tonnes of 63.75-percent grade iron ore fines at$134.05 per tonne at a tender on Monday, he said. Vale is selling iron ore about as fast as it can mine it despite aslowdown in China, the company’s head of investor relations said onMonday, adding the miner was not experiencing problems with orders.
(Editing by Himani Sarkar) SUBSCRIBE to Mineweb.com’s free daily newsletter now.