September 13, 2012 / 7:36 AM / 5 years ago

UPDATE 1-Iron ore falls back below $100, doubts on China steel outlook

* China spot steel prices drop after recent surge
    * China mills' steel stocks up 34 pct in June vs year-ago -
analyst
    * Iron ore price offers in China cut by $2 to $4/tonne

 (Adds Shanghai rebar price)
    By Manolo Serapio Jr
    SINGAPORE, Sept 13 (Reuters) - Iron ore fell back below $100
a tonne after a three-day rally, prompting sellers to cut price
offers on Thursday, after a drop in Chinese steel prices pointed
to a market struggling with slow demand and oversupply.
    Price offers for imported iron ore in top consumer China
dropped by $2-$4 per tonne, according to industry consultancy
Umetal, after the benchmark 62-percent grade .IO62-CNI=SI fell
2.1 percent to $98.10 a tonne on Wednesday, based on data from
price provider Steel Index.
    Iron ore prices surged more than 15 percent from Friday to
Tuesday, taking the rate to $100.20 this week, after China's
approval of 1 trillion yuan ($158 billion) worth of
infrastructure projects raised hopes for a recovery in steel
demand.
    But those hopes quickly faded amid scant details of the
projects that involve building highways, ports and airport
runways, which are also likely to take years.           
    "The fundamentals haven't really changed since that news
came out. There's still so much supply of steel out there and
demand is really slow," said an iron ore trader in Shanghai.
    "There are expectations supply of raw steel could rise again
because a lot of the small- and medium-sized steel mills that
closed for maintenance weeks ago have now restarted production."
    China's crude steel output dropped a modest 1.7 percent to
58.7 million tonnes in August from a year earlier, government
data showed on Tuesday. For January-August, output is up 2.3
percent at about 482 million tonnes. 
    The inventory of finished steel products among major Chinese
steel producers stood at 12.9 million tonnes at the end of June,
34 percent more than the same period a year ago, according to
data compiled by Bank of America-Merrill Lynch.
    
    FINDING BALANCE
    Many Chinese steel mills have cut prices again amid lean
demand after raising them over the past few days, traders said.
The price of steel billet in China's key Tangshan area fell by
160 yuan to 2,800 yuan per tonne on Wednesday, said Umetal.
    The most-traded rebar contract for January delivery on the
Shanghai Futures Exchange closed nearly flat at 3,455
yuan per tonne on Thursday. 
    Iron ore traders have similarly cut back prices as buying
interest swiftly thinned out. 
    Australian 61-percent grade Pilbara iron ore fines stocked
at China's ports were being sold at 740 yuan per tonne on
Tuesday morning, and went up to 800 yuan in the afternoon,
another Shanghai trader said.
    But by Wednesday afternoon, the price had dropped to 760
yuan, and some traders were offering cargoes at 720-740 yuan per
tonne by Thursday, he said. 
    "The mills were really hungry for raw material in the past
three days, since many of them were running low on inventory.
But now those mills have already bought some cargoes and at a
higher price so they're not in a hurry to buy more," said the
second trader.
    "The effect of the infrastructure projects has passed and
now the market is adjusting again to find its balance," he said,
adding iron ore prices could drop to $90 by the end of the week.
   
    Iron ore hit a low of $86.70 last week, its weakest since
October 2009.
        
  Shanghai rebar futures and iron ore indexes at 0707 GMT
                                                                                          
  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN3                   3455     -2.00        -0.06
  PLATTS 62 PCT INDEX              99.25     -2.50        -2.46
  THE STEEL INDEX 62 PCT INDEX     98.10     -2.10        -2.10
  METAL BULLETIN INDEX            100.79     -0.85        -0.84
                                                                                          
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
    
($1=6.3264 Chinese yuan)

 (Reporting by Manolo Serapio Jr.; Editing by Clarence Fernandez
and Robert Birsel)

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