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Dalian iron ore bounces off low, but glut woes weigh

(Reuters)
Updated: 2014-07-02 09:52
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    Chinese iron ore futures came off session lows after falling more than 1 percent on Tuesday, although continuing caution in the glut-hit market capped the rise despite fresh evidence of recovery in the country's manufacturing sector.
   
    Spot iron ore prices are expected to steady in the second half of the year after a plunge in the first six months on a flood of new supply to top buyer China, but further weakness is seen in 2015, a Reuters poll showed. Iron ore has lost 30 percent this year and has been stranded below $100 a tonne for six weeks now.
   
    "A key concern is whether the growth in seaborne iron ore supply from Australia can be absorbed if steel demand in China cannot grow at the same rate," Australia and New Zealand Banking Group said in a note.
   
   
    Iron ore for September delivery on the Dalian Commodity Exchange closed 0.3 percent higher at 701 yuan ($110) a tonne, after falling 1.1 percent to a session low of 691 yuan.
   
    The contract fell 22 percent in the first six months of the year.
   
    The price drop earlier came despite government data showing that China's factory activity quickened to a six-month high in June on improving domestic and foreign demand, adding to signs that the economy is regaining strength after an unsteady start to 2014.
   
    Benchmark 62 percent grade iron ore fell 1.2 percent to $93.80 a tonne on Monday, according to data compiler Steel Index.
   
    "Buyers retreated from the market in the face of high offers," Steel Index said, slowing down from stronger buying interest in the past week when a slide in the benchmark price to a 21-month low of $89 had fueled appetite for spot cargoes.
   
    Iron ore will average $100 a tonne in the second half of 2014, according to the median estimate in a Reuters poll of 11 analysts, down from around $112 in the first six months.
   
    The price is forecast to slip further to $96 next year, the poll showed, the first time since 2009 that the annual average would be below $100.
   
    A decade of short supply is coming to an end as an expansion binge by global miners increases output, knocking the price of the steelmaking raw material in the first half and forcing high-cost Chinese producers to curb production.
   
    Chinese steel futures slipped for a second session on Tuesday. The most-traded rebar contract for delivery in October on the Shanghai Futures Exchange dropped 0.3 percent to end at 3,069 yuan per tonne.
   
    Steel demand in China, the world's biggest consumer and producer, tends to slow down along with construction activity during the summer months that run through August. Demand is also at risk from a weaker property sector.
   
    "Any weakness in Chinese steel demand in the second half is likely to come from a slowdown in residential construction, as falling residential property prices potentially slow sales and property development," ANZ said. Shanghai rebar futures and iron ore indexes at 0706 GMT Contract Last Change Pct Change SHFE REBAR OCT4 3069 -9.00 -0.29 DALIAN IRON ORE DCE DCIO SEP4 701 +2.00 +0.29 SGX IRON ORE FUTURES JULY 94 +0.42 +0.45 THE STEEL INDEX 62 PCT INDEX 93.8 -1.10 -1.16 METAL BULLETIN INDEX 94.02 -1.79 -1.87 Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.2021 Chinese Yuan Renminbi)
 

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