Chinese iron ore, steel prices slip on oversupply worries
* Market unimpressed by latest mini-stimulus in northeast
* Iron ore, steel inch down; traders hope for September
revival
* Illegal steel production still adding to oversupply
By David Stanway
BEIJING, Aug 20 (Reuters) - Prices of iron ore and steel
continued to fall in China on Wednesday, with traders still
worried by oversupply and unimpressed by the latest government
efforts to stimulate construction demand in northeastern
regions.
"I'm just observing the market to see where I can make a
profit. If there are price differences between the Dalian
Commodity Exchange and the ports, for example, we can sometimes
make money, but right now there isn't much of an opportunity,"
said a trader based in Beijing.
"Right now, the price for iron ore is going down and down,
and I personally believe we need to wait until September or
October before it goes up again," he said.
On Tuesday, China issued detailed new policy measures aimed
at speeding up infrastructure investment in its struggling
northeastern rust belt.
While new road and rail projects in the region could
stimulate steel demand, the policy wasn't enough to breathe life
into the stagnant iron ore market.
Benchmark 62 percent grade iron ore for immediate delivery
into China slipped 0.3 percent on Tuesday to end
at $93 per tonne, its lowest level in two months and 33 percent
lower than at the same time last year.
"A price recovery in iron ore is being held back further by
mills that are selling long-term, fixed-price cargoes into the
spot market, adding to excess supply," Australia and New Zealand
Bank said in a note on Wednesday.
Domestic supplies also remain resilient, with utilisation
rates at major Chinese iron ore mines rising in August,
according to research published this week by Chinese brokerage
GF Securities.
Rebar prices on the Shanghai Futures Exchange ended
the morning session down 0.33 percent at 3,003 yuan ($489) per
tonne. The most active iron ore contract for September delivery
on the Dalian Commodity Exchange finished at 654 yuan
a tonne, up 0.31 percent.
Melinda Moore, an analyst with Standard Bank, said the
market was "still absorbing over-exuberant steel mill output in
the first 10 days of August".
There were signs that China was getting to grips with steel
oversupply in July, when plant overhauls and even closures
helped drag average daily steel output down to its lowest level
of the year, according to official data.
However, the daily rate remained 3 percent higher than the
average in the whole of last year, and China Iron and Steel
Association data on Monday showed it had rebounded in August.
Analysts said the scale of the production increase in the
first 10 days of the month had taken the market by surprise and
suggested that China's efforts to shut down old capacity were
not having as big an effect as anticipated.
China's industry ministry has set a September deadline for
the closure of nearly 47 million tonnes of steel and iron
smelting capacity, but the shutdowns can quickly be offset by
larger mills seeking to expand market share. Despite a state
crackdown, illegal production also remains a factor.
"Illegal production capacity remains too strong, and as soon
as capacity is shut down, illegal capacity comes and replaces
it," according to a research note from online steel trading
platform GTXH.com.
Rebar and iron ore prices at 0331 GMT
Contract Last Change Pct Change
SHFE REBAR JAN5 3003 -10.00 -0.33
DALIAN IRON ORE DCE DCIO JAN5 654 +2.00 +0.31
THE STEEL INDEX 62 PCT INDEX 93 -0.30 -0.32
METAL BULLETIN INDEX 93.03 -0.32 -0.34
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
(1 US dollar = 6.1464 Chinese yuan)
(Editing by Alan Raybould)