November 7, 2011 / 4:19 AM / 8 years ago

Iron Ore-Spot rises further, weak steel outlook to cap gains

* Offers for Australia, Indian cargoes up $1-$2/T

* Oversold, iron ore may rise by another $20/T -Macquarie

* China steel consumption seen at 750 mln T by 2015 (Adds China steel consumption, port stocks, updates rebar price)

By Manolo Serapio Jr

SINGAPORE, Nov 7 (Reuters) - Iron ore prices are likely to stretch gains this week as more mills in top consumer China return to the market to replenish inventories, but a wobbly outlook for steel demand may cap the upside.

Iron ore, which fell more than 30 percent in October, began stabilising last week, gaining more than 8 percent, as Chinese demand picked up.

“There’s more buying interest from the mills, but some traders and miners are also holding off for better prices,” said an iron ore trader in Shanghai, adding that some Indian miners had canceled tenders last week at the last minute, hoping prices would move higher this week.

Price offers for Australian and Indian cargoes to China rose $1-$2 a tonne on Monday, said Chinese consultancy Umetal.

Australian 61.5-percent grade Pilbara iron ore fines increased $1 to $125-$127 a tonne, and Indian 63.5/63 fines rose $2 to $133-$135 a tonne, Umetal said. The prices include freight cost.

Iron ore with 62 percent iron content rose 2 percent to $126.50 a tonne on Friday, according to Platts IODBZ00-PLT, marking its fifth straight day of gains.

The steelmaking ingredient jumped 8.4 percent last week, its first weekly rise in nine weeks.

Inventories of imported iron ore at major Chinese ports climbed 2.3 percent to 94.85 million tonnes last week, industry data showed on Friday.

The 62-grade ore could move back above $130 a tonne this week, the Shanghai trader said.

“The price rise will not be so fast,” he said.

“Sentiment is cautiously optimistic. We still need to pay more attention to steel demand in China which has not shown any significant change.”

POWER BACK TO SELLERS

Iron ore slumped more than 35 percent in September and October as weaker steel demand in China dampened appetite for the raw material.

Iron ore shipments from Australia’s Port Hedland, one of the world’s largest export terminals, slipped to 19.9 million tonnes in October from 20.0 million in September, data released by the port authority showed on Monday.

Shipments to China, the port’s biggest destination, eased to 14.7 million tonnes last month from 15.1 million tonnes in September, according to the data.

Macquarie expects iron ore prices to rebound in coming weeks after stability returned to the market last week.

“We would reiterate our call that iron ore looks oversold at current levels,” Macquarie said in a note.

“After (last) week’s stabilisation, we believe the iron ore price could recover a further $20/tonne rapidly as the balance of power shifts back to the sellers amid low inventory conditions and a stabilised steel market.”

Anticipating further rises in spot rates, prices of forward swaps <0#SGXIOS:> extended recent gains. The Singapore Exchange-cleared November contract rose $2.38 to $131 a tonne, December climbed $2.88 to $136 and January advanced $2.25 to $136.

Chinese steel prices regained some ground towards the end of October after falling mostly since early September, although declining orders have pushed some producers to curb production to stem losses.

Tighter credit in China has largely been blamed for choking off demand, which is likely to remain limited during winter months when the construction sector, which comprises around half of total domestic consumption typically grinds to a halt.

The most-active May rebar contract on the Shanghai Futures Exchange eased 0.4 percent to close at 4,106 yuan a tonne.

China expects annual crude steel consumption to reach around 750 million tonnes by 2015, the country’s Ministry of Industry and Information Technology said, citing steadier growth in demand.

The world’s biggest steel market, China’s apparent consumption stood at above 600 million tonnes in 2010. In the nine months to September this year, apparent consumption reached around 500 million tonnes.

“China’s steel demand growth will slow down annually and enter a steady stage along with the slower growth in infrastructure investment,” according to the 12th five-year plan on the country’s steel sector published on the ministry’s website. (Editing by Michael Urquhart)

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