Down more than 16% this year, iron ore is wallowing near its cheapest in 2-1/2 years as Chinese steel mills limit spot purchases until steel prices rebound significantly.
China's steel futures slipped for a fourth day in six on Wednesday, dogged by sluggish demand that is keeping pressure on spot prices of raw material iron ore, with both commodities likely to see more weakness before any recovery begins.
Down more than 16 percent this year, iron ore is wallowing near its cheapest in 2-1/2 years as Chinese steel mills, the world's biggest buyers of iron ore, limit spot purchases until steel prices rebound significantly.
The most-traded January rebar contract on the Shanghai Futures Exchange dropped 0.3 percent to 3,677 yuan ($580) a tonne by the midday break. The contract hit an all-time low of 3,631 yuan on Friday, and is down 11 percent this year.
Spot steel prices are stabilising, although the market is "still very weak," said an iron ore trader based in Shanghai.
"It's difficult to expect any meaningful recovery in both steel and iron ore prices in the near term."
A stuttering Chinese economy is limiting the country's demand for raw materials. With abundant stocks at home, analysts expect China's imports of iron ore and other commodities such as copper and crude oil to drop for a second month in a row in July. The data is due to be released on Friday.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI eased 0.3 percent to $116.20 per tonne on Tuesday, according to Steel Index, falling for a fourth straight day.
That is just a dollar away from the $115.20 reached on July 30 -- the lowest since Dec. 29, 2009 -- at the end of a 14-day losing run.
Iron ore shipments to China from Port Hedland in top exporter Australia fell 7.1 percent in July from the previous month, although they were still up strongly from July last year, port authority data show.
SHORT ON STOCK
But miners this week managed to sell cargoes at prices not far from recent deals and in line with market offers, suggesting the market could soon find a bottom, traders said.
BHP Billiton sold 90,000 tonnes of 57.7-percent grade Australian Yandi iron ore fines at $107.23 a tonne at a tender on Tuesday, against $107.50 last week, the Shanghai trader said.
Vale sold a 147,000-tonne cargo of 64.08-percent grade iron ore at $121.97, a level similar to recent deals, he said.
"Some mills might be really short on stock, so they need to replenish," said a Singapore-based trader.
But unless steel demand picks up, traders say iron ore prices are unlikely to recover strongly and could even slip further if more Chinese producers curb output.
China's crude steel production fell 2.2 percent to 1.949 million tonnes on average over July 21-31 from July 11-20, data from the China Iron and Steel Association showed.
Heavy rains in Shanghai could also dampen physical trading on Wednesday, traders said. Tropical storm Haikui was headed for China's Zhejiang province, where more than 250,000 people have been evacuated.
($1 = 6.3664 Chinese yuan)