Iron ore prices set to slip but not for long_Iron Ore

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Iron ore prices set to slip but not for long

作者：25 发布时间：2010-05-21 文字大小：【大】【中】【小】

Measures to cool China's booming property market are set to curb nearby steel demand and drag spot iron ore prices down further — but only temporarily before they rally again later this year to USD 200 a tonne.

Spot iron ore prices have dropped 15% since late April after nearing USD 200 a tonne, their highest since February 2008, on robust demand from China, where crude steel output hit an all-time high in April.

The fall in iron ore has now also dragged down spot steel prices in China, the world's biggest iron ore importer and steelmaker, although some of its biggest mills such Baosteel have kept prices unchanged due to caution about the duration of the pullback.

Looming government measures to cool down China's economy, coupled with high inventories, mean the price pullback could continue into the third quarter, traders say.

"The expectation seems to be a continuing easing off the price, in part because of demand in Chinaand Chinese government moving to take the heat out of the construction boom," said David Tucker, managing consultant at Hatch Beddows said.

Private research group The Conference Board said on Monday that China's economic growth may not have scope to accelerate over the next few months. Its leading economic index (LEI) for China, rose to 144.5 in March, up 1.1% from February.

In addition to the tightening measures, construction could slow down as summer approaches but several analysts agreed the drop off would be temporary and confined to certain regions rather than the whole country.

"I don't expect these smaller cities would slow down their speed in construction projects, which mainly contributed to their GDP growth," a trader in Shanghai said, "Beijing's recent actions would clamp down real estate prices in short term, while those smaller cities would be less affected."

Analysts say iron ore prices could sink as low as USD 130 a tonne in the near term. Some say at that level parts of China's domestic iron ore production would stop being profitable and would have to be taken off the market.

"There is a buffer, around USD 120-130 a tonne, when Chinese domestic production is going to start falling out of the mix," Tucker said.

China's state-run trader Sinosteel said in early May that it expected domestic production to rise about 9% to 960 million tonnes this year, while imports were forecast to increase by 5% to 660 million tonnes.

But that rise was being offset by a decline in ore grades, which have slipped from 50% iron to near 20% since 2003.

Sourced from www.moneycontrol.com