SINGAPORE – Iron-ore prices drifted to five-week lows, and are headed for their biggest weekly fall since mid-March, ahead of a long holiday weekend in top importer China that has thinned demand already hurt by a shaky steel market.
Chinese markets would be shut between April 29 and May 1 for public holidays, and traders were uncertain that buying interest would return when they reopened next Thursday.
"We are not positive about the market, mainly because of weak steel prices. This is supposed to be the peak consumption season for steel, but it's not happening," said an iron-ore trader in Shanghai.
In response to slower steel demand, many small- and midsize steel mills in China had been limiting their own inventories of iron-ore, opting to buy only when needed.
"Instead of holding inventory for between 15 and 20 days, they keep smaller stockpiles and just replenish quickly. That's why there's better demand for prompt cargo than future cargo," the trader said.
Iron-ore with 62% iron content, the industry benchmark, dropped 50c to $134.60 a tonne on Thursday, its weakest since March 21, based on data from information provider Steel Index.
The price of iron-ore – the biggest money spinner for top miners Vale and Rio Tinto – had fallen in eight of the last nine sessions.
For the week, it was down 2.5% so far, the biggest such drop since the week ended March 15.
Poor Steel Margins
The price had fallen 15% from this year's peak of nearly $159, but Brazil's Vale, the largest iron-ore producer, said it expected firm Chinese demand to keep prices between $110 and $160.
"Weakness in iron-ore prices seems to be driven by mills seeking to reduce May crude output levels from current record highs, given poor steel margins and some falls from peak March-April restock demand levels," Standard Bank strategist Melinda Moore said in a note.
The most-traded rebar contract, for October delivery, on the Shanghai Futures Exchange, slipped 0.7% to 3,619 yuan ($590) a tonne, and was down 1.4% for the week, its second such loss in a row.
Baoshan Iron and Steel, China's biggest steelmaker by market value, posted a rise of 33% in first-quarter net profit, but said steelmakers' profits were unlikely to gain much in the second quarter as a tepid Chinese economic recovery weighed on demand.
But Moore said she did not expect iron-ore prices to stray too far from the bank's estimated trading range of between $129 and $138 during the second quarter, given low inventories of raw material in China and fresh supplies that were "far from booming, particularly from Brazil."
Physical trade was limited on Friday ahead of the Chinese holidays.
Rio Tinto was offering South African 64.5% grade iron-ore concentrate at a tender closing on Friday, traders said.
BHP Billiton sold a cargo of 57.7% grade Australian Yandi fines at $124 a tonne at a tender on Thursday, down about $4 from earlier in the week, traders said.