July 31, 2012 / 8:08 AM / 5 years ago

Iron Ore-Shanghai rebar rises, ore prices hover near 30-mth low

* Shanghai steel futures edge up slightly
    * Iron ore prices hover near recent low, outlook uncertain

    SHANGHAI, July 31 (Reuters) - Chinese steel futures edged
higher on Tuesday as investors returned to the market cautiously
hoping that output cuts by steel mills would help ease swelling
inventories, but gains were capped by expectations that the
reduction would be short-lived.
    The most active rebar contract for January on the Shanghai
Futures Exchange had risen to 3,770 yuan per tonne by
0751 GMT, up 0.43 percent from the previous day. Rebar prices
fell about 7 percent over the three weeks to July 27.
    "News that steel mills have begun to cut production is
supporting prices. The market has been full of negative news for
a while and finally something positive has emerged," said a
trader in costal Shandong province. "But the overall market
fundamentals haven't improved much. I don't expect a bigger
recovery until end-August."
    China's small and medium-sized steelmakers are stepping up
maintenance in an effort to trim production and stem losses
following a slump in steel prices. The cuts have buoyed hopes
that the supply overhang would soon ease. 
    But some experts warned that the cuts may be short-lived. 
    The China Iron and Steel Association (CISA) said Beijing's
pro-growth measures in the latter half of this year could
encourage mills to ramp up output again, recreating the same
problems seen in the first-half.
    Iron ore prices are hovering near a 30-month low and the
market is divided over whether they will head further south.
    Metal Bulletin Iron Ore Index .IO62-CNO=MB is the only one
of three major indexes to post the first rise on Monday since
July 9. Iron ore with 62 percent iron content rose 0.1 percent
to $117.55 per tonne.
    The Steel Index for the same grade .IO62-CNI=SI eased to
$115 per tonne, its fourteenth consecutive fall and the biggest
monthly drop since October. Platts IODBZ00-PLT fell 0.4
percent to $117.50.
    "I don't think they have hit bottom yet," a Beijing-based
iron ore trader said. "But I do agree that if mills are low on
inventories and prices start to stabilise, then they may enter
the market again and buy some cargoes."
    A senior CISA official said iron ore prices were still high
compared with steel product prices.   
    The remarks came even after spot iron ore prices slumped to
the lowest in more than 2-1/2 years last Friday. 
    Profits at China's steel mills plunged 96 percent in the
first half from a year earlier due to poor demand, with
financing costs jumping 37 percent from a year earlier, CISA
said on Tuesday. 
  Shanghai rebar futures and iron ore indexes at 0710 GMT
  Contract                          Last    Change  Pct Change                         
  SHANGHAI REBAR*                   3772     15.00        0.40
  PLATTS 62 PCT INDEX              117.5     -0.50       -1.26
  THE STEEL INDEX 62 PCT INDEX     115.2     -1.00       -0.86
  METAL BULLETIN INDEX            117.55      0.12        0.10
  *In yuan/tonne                                                                       
  #Index in dollars/tonne, show close for the previous trading day
 (Reporting by Ruby Lian and Fayen Wong; Editing by Chris Lewis)
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