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UPDATE 1-China iron ore at contract low on weak steel prices

UPDATE 1-China iron ore at contract low on weak steel prices

    * Shanghai rebar falls for 6th session in 7, near record low

    * Spot iron ore at weakest since August, may breach $130/tonne

 (Updates prices)

    By Manolo Serapio Jr

    SINGAPORE, Jan 13 (Reuters) – Chinese iron ore futures fell

1 percent on Monday to their lowest since the contracts were

launched in October as weaker steel prices curbed demand for the

raw material.

    Spot iron ore dropped to its cheapest in more than five

months on Friday and could ease further below $130 a tonne this

week as cautious traders keep their hands off fresh cargoes,

with demand seen unlikely to perk up until after the Chinese New

Year.

    The most-active iron ore contract on the Dalian Commodity

Exchange, for May delivery, hit a session low of 868

yuan ($140) a tonne, its weakest since it was introduced on Oct.

18. It closed down 0.7 percent at 871 yuan.

    “We’re not buying iron ore for now. It would be difficult to

sell a cargo at the moment so we’ll wait until after the Chinese

New Year and see how the market goes,” said a Shanghai-based

iron ore trader.

    “Most mills are cautious about the market for steel products

and secondly, they have problems with tighter liquidity.”

    In past years, Chinese mills have usually stocked up on iron

ore ahead of the week-long Lunar New Year break, which starts on

Jan. 31 this year. But a softer steel market had curbed buying

interest this year.

    The most-traded May rebar contract on the Shanghai Futures

Exchange declined to as low as 3,449 yuan a tonne, not

far off Friday’s trough of 3,441 yuan – the lowest since the

contracts were launched in 2009.

    Rebar, a steel product used in construction, settled 0.3

percent lower at 3,462 yuan, falling in six out of seven

sessions.

    Slower Chinese demand has weighed on spot iron ore prices,

adding to last year’s more than 7 percent drop.

    Iron ore for immediate delivery to China .IO62-CNI=SI

slipped 0.2 percent to $130.70 a tonne on Friday, its lowest

since Aug. 5, according to data compiled by Steel Index.

    “Current prices have encouraged some restocking activity

from smaller mills but we suspect prices may fall towards

$125/tonne in the short term, as weaker Chinese construction

activity and high at-port inventories weigh on prices,”

Australia and New Zealand Banking Group said in a note.

    China, which buys over two-thirds of the world’s seaborne

iron ore, purchased 73.38 million tonnes of the commodity in

December, down almost 6 percent from a record high in November,

customs data showed on Friday.

    Weaker steel prices had prompted some mills to reduce

production, putting China’s average daily crude steel output at

1.961 million tonnes in late December, the first time the pace

fell below 2 million tonnes since last February.

    A tender for 170,000 tonnes of 61 percent grade Australian

Pilbara iron ore fines closing later on Monday may help offer

some direction to the market, traders said.

    A cargo of the same grade was last sold via tender at

$130.60 a tonne before the Christmas holiday, said the Shanghai

trader who expects the latest offer to fetch a lower price.

  Shanghai rebar futures and iron ore indexes at 0705 GMT

  Contract                          Last    Change   Pct Change

  SHFE REBAR MAY4                   3462     -9.00        -0.26

  DALIAN IRON ORE MAY4               871     -6.00        -0.68

  THE STEEL INDEX 62 PCT INDEX     130.7     -0.30        -0.23

  METAL BULLETIN INDEX            131.05     -0.21        -0.16

  Dalian iron ore and Shanghai rebar in yuan/tonne

  Index in dollars/tonne, show close for the previous trading day

 ($1 = 6.0521 Chinese yuan)

 (Editing by Muralikumar Anantharaman)

 From：in.reuters.com