Iron ore swaps premium over spot widens on China restocking bet

Fri Oct 5, 2012 5:22am GMT
 

* Mills likely to replenish when China returns next week
    * Vale halts output at 3 Brazil iron ore pellet plants

    By Manolo Serapio Jr
    SINGAPORE, Oct 5 (Reuters) - Bids for iron ore forward swaps
remained firm on Friday, reflecting investor expectations spot
iron prices will bounce back as Chinese steel mills replenish
inventories when they return next week.
    The premium of swap prices over spot has widened this week,
although the absence of Chinese traders due to the National Day
holiday limited trading volumes on the cash-settled derivatives,
with physical markets grinding to a halt.
    The November iron ore swap contract climbed 2.5
percent to $111.42 a tonne on Thursday, and December 
jumped by around the same amount to $111.58, with other further
forward contracts <0#SGXIOS:> also extending recent gains.
    On Thursday, the average bid for the fourth-quarter swaps
was at $112.50, traders said, above Thursday's average
settlement of $111.31.  
    The prices are well above the benchmark spot rate of $104.20
a tonne for 62-percent grade iron ore .IO62-CNI=SI, where it
was stranded for a seventh straight day on Thursday, with
China's holiday silencing physical markets.
    "People are betting that the Chinese will restock next week
so we've seen some activity in swaps," said a Singapore-based
trader. 
    The thin volumes, however, may have also helped exaggerate
price gains, he said.  
    Volume cleared by the Singapore Exchange - which clears the
bulk of cash-settled iron ore swaps traded globally - increased
to 812 lots, or 406,000 tonnes, on Thursday from 322 lots on
Wednesday.
    Last month, the amount of swaps cleared by the Singapore
Exchange peaked at nearly 4,000 lots on a daily basis, based on
exchange data.
    Iron ore hit a three-year low of $86.70 in September and
while prices have since rebounded to above $100, they have
struggled to go much higher in the face of poor steel demand in
China, the world's biggest consumer.
    Responding to slower global steel demand, Brazil's Vale
, the world's top iron ore miner, said on Thursday
that it plans to suspend operations at three Brazilian iron ore
pellet plants and increase output of lower-value mine products.
 
        
  Iron ore indexes 
                                                                                           
                                    Last      Change   Pct Change
  PLATTS 62 PCT INDEX                107      +0.00        +0.00
  THE STEEL INDEX 62 PCT INDEX     104.2      +0.00        +0.00
  METAL BULLETIN INDEX             106.46     +0.00        +0.00
 
                                                                                           
  Index in dollars/tonne, show close for the previous trading day
 
 (Editing by Miral Fahmy)

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