Dec. 19 (Bloomberg) -- Iron ore prices may remain below $140 a metric ton as Chinese steel mills, the world’s biggest consumers, limit purchases on profitability concerns, said Mysteel.com.
"Iron ore above $140 may force steelmakers to incur losses at current steel prices,” Chen Zhenxing, a Shanghai-based analyst at the research firm, said in a phone interview. Prices may trade between $133 and $140 before the week-long Lunar New Year holiday, which starts Jan. 23 he said. “Mills and traders are short of capital around the year end and that will also curb their buying activities.”
China’s lending slowed in November and money supply grew the least since May 2001, highlighting the risk of a deeper slowdown in the world’s second-biggest economy. Ore with 62 percent content at China’s Tianjin port traded at $132.10 a ton as of Dec. 16, according to The Steel Index Ltd.
"Steelmakers are trying to keep their raw-material inventories thin because the prices are increasingly volatile,” he said. "They’d rather order only one or two ships from miners for the holiday and buy the rest from the spot market at ports.”
Ore prices have rebounded 13 percent from a year low on Oct. 28. Prices have averaged 15 percent higher than last year’s $147 a ton. Steel prices have declined 11 percent from this year’s high in January.
Goldman Sachs Australia raised its price forecast by 7.1 percent for next year to an average $150 a ton, analyst Malcolm Southwood said in a report on Dec. 14.
Crude-steel output in China, the world’s biggest producer, fell to 49.9 million tons in November, the lowest level in 14 months as a slower economy eroded demand and cut prices. Twenty- five out of China’s 77 largest mills incurred losses in October, with the average profit margin of the whole industry falling to a record 0.47 percent during the period, according to the China Iron and Steel Association.
Still, the nation’s imports of iron ore rebounded 29 percent in November to 64.2 million tons from an eight-month low a month earlier, according to data from the General Customs. Iron ore prices tumbled 31 percent in October, prompting some mills to replenish their stockpiles.
Rio Tinto Group, the world’s third-largest mining company by market value, may put 10 ships of iron ore to auction in China before Christmas, bringing the total number to 14 this month, Chen said. The company sold 16 ships of ore by public tender in November in China, he said.
The Chinese iron ore market may “ease” in 2012 from recent years on expectation of a 7 percent increase in the global supply and a “slow demand growth”, Credit Suisse Group AG analysts Trina Chen and Frankie Zhu said in a Dec. 14 report.