Iron Ore-Shanghai rebar cuts gains; China move eyed

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

20 Nov 2010

Shanghai rebar futures trimmed gains on Friday as Chinese equities retreated while investors braced for a looming interest rate hike in China, a move that may dent demand for steel and other commodities. Speculation over another rate hike grew louder after an official Chinese newspaper suggested Friday could be a convenient time to raise rates before banks settle accumulated interest on the 20th day of the month, and Chinese Premier Wen Jiabao said his government was preparing steps to tame price rises.
With inflation running at a 25-month high, raising interest rates or taking measures to cap domestic prices could constrain commodity demand or drain liquidity from markets.
"Another rate hike and other measures to be introduced by the government to control inflation will provide some downward pressure on prices," said Judy Zhu, commodity analyst at Standard Chartered Bank in Shanghai.
"That's going to force speculative money to temporarily exit commodity markets."
The most active May rebar contract on the Shanghai Futures Exchange was up 0.2 percent at 4,621 yuan a tonne by the midday break, off an early high of 4,666 yuan as Shanghai stocks slid 1.1 percent.
Zhu said she does not expect steel demand in China, the world's biggest market for the alloy, to pick up substantially until the second quarter of 2011.
"Because of the crackdown on the property market, transaction volumes have flattened from previous high levels and we expect real estate inventories to pick up from now to the end of the first quarter next year and that's going to delay property developers' construction plans," she added.
KARNATAKA DECISION DUE
Iron ore prices steadied at six-month highs although offers for Indian ore with 63.5 percent iron content have retreated to as low as $163 a tonne, cost and freight in China, from a high of $169 earlier this week.
"Some traders have started to cut offers to try to sell their material on hand," said a Beijing trader, adding bids were scarce amid uncertainties clouding the market including the possibility of further Chinese monetary tightening.
The Steel Index iron ore benchmark .IO62-CNI=SI was unchanged at $163.20 a tonne on Thursday, C&F. The level hit on Wednesday was the highest since May 17.
Market players are awaiting a ruling from the Karnataka High Court, due around 0900 GMT, on a ban on iron ore exports from the southern Indian state in place since late July.
Karnataka makes up about a quarter of India's annual iron ore exports and the ban has helped prices rebound from seven-month lows in July. India is the world's third-largest exporter of the ore.
Lifting the ban could weigh on iron ore prices although some analysts say the impact may be short-lived as the industry faces a shortage in new capacity in the next two years with many expansion projects delayed during the financial crisis.
"We do not expect substantial increase in global iron ore supply before 2013," said StanChart's Zhu.
"We believe the global iron ore market will be in severe shortage next year and the year after and that's going to push up prices even if the demand growth for iron ore will slow down."

Source: Reuters