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China iron ore futures bounce off record low, outlook still cautious

(Reuters)
Updated: 2014-06-04 14:27
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    Chinese iron ore futures edged higher on Wednesday as investors took advantage of battered prices to buy the steelmaking raw material, although a cautious market tone capped gains while futures in Singapore retreated.
   
    Spot prices of iron ore have bounced modestly from a 20-month low reached last week as some buyers bought cargoes but Chinese mills are keeping purchases small with no strong signal yet that the market has reached a bottom.
   
    Iron ore for September delivery on the Dalian Commodity Exchange had gained 1.2 percent to 688 yuan ($110) a tonne by midday. It fell to 675 yuan on Tuesday, the lowest for a most-traded contract since the Dalian exchange introduced the product in October last year.
   
    At the Singapore Exchange, iron ore for delivery in June eased 0.2 percent to $93.85 a tonne by 0343 GMT.
   
    "Mills are purchasing cargoes in small lots because they are not too positive about the future market for steel," said an iron ore trader in Tianjin.
   
    A weak housing market in China is dimming the outlook for steel demand in the world's top consumer of the commodity. The growth in China's housing prices slowed to a near one-year low in April and property investments have also eased.
   
    Beijing has ruled out any big fiscal stimulus to aid the economy but has been introducing supportive measures including cutting the reserve requirement for more banks to shore up lending.
   
    The most-active October rebar contract on the Shanghai Futures Exchange was up 0.2 percent at 3,059 yuan a tonne, after hitting a record low of 3,040 yuan on Tuesday.
   
    Iron ore for immediate delivery to China rose 0.4 percent to $92.50 a tonne on Tuesday, according to Steel Index which compiles the data. The raw material fell to $91.80 on Friday, its weakest since September 2012.
   
    Buyers snapped up Australian and Brazilian cargoes after the recent slide in prices, traders said, although available supply remains plenty.
   
    "A buyer today can easily buy 5 million tonnes from the big three miners if they have the appetite for it," said a trader in Singapore, referring to Vale, Rio Tinto and BHP Billiton.
   
    Iron ore exports to China from Australia's Port Hedland hit a record 29.9 million tonnes in May, data from the port showed. About a quarter of the world's iron ore shipments go through Port Hedland.
   
    "Our view is that current prices look oversold with a 10 percent to 15 percent rebound likely in the coming months. Traditional indicators such as the cyclical decline in steel inventories and improved manufacturing activity (in China) are supportive of a price rise," Australia and New Zealand Bank said in a note. ($1 = 6.2541 Chinese Yuan Renminbi)
 

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