* Steel mills may return to market for restocking
* Buying expected to be limited to small volumes
By Ruby Lian and Fayen Wong
SHANGHAI, July 30 (Reuters) - Chinese traders expect iron ore prices to pause from a recent decline and stabilise after hitting a 2-1/2 year low last week, as the country's steelmakers take advantage of low prices to restock the key steelmaking ingredient.
Still, industry participants said any bargain buying would be limited, and prices were unlikely to stage a significant rebound amid uncertainties about the health of the global economy.
"Steel mills may need to replenish some stocks after they saw prices have slid too much over past few weeks, and they are also running very low stocks," said an iron ore trader in Shanghai.
The Steel Index's price for 62 percent-grade iron ore grade .IO62-CNI=SI for delivery to China hit $116.20 per tonne on Friday, its thirteenth consecutive decline and its lowest level since Dec. 29, 2009. The price fell 7 percent in a week.
The most active rebar contract for January on the Shanghai Futures Exchange was traded almost flat on Monday after edging up to an over one-week high of 3,776 yuan ($590) per tonne.
Sharply falling prices and swelling inventories have forced some small traders to sell their stocks at a loss, abandoning hopes for a strong rebound in demand for iron ore and steel in the latter half of this year given the bearish outlook in the global economy.
"Spot prices are currently cheaper than the stocks that steel mills have on hand. If the decline persists, it would encourage steel mills to restock more," said a trader in
However, traders said fears about the global economy and fragile growth in China meant iron ore prices would likely stay rangebound in the near term.
With tepid demand worldwide and strong production from Australia and Brazil, some industry experts warn that the downtrend for iron ore prices remains intact and prices could touch $110 a tonne if demand doesn't pick up fast enough.
"Prices will probably not fall as sharply as they did in the past month, but they may continue to decline since the overall macro environment remains unstable," said the Shanghai-based trader.
Shanghai rebar futures and iron ore indexes at 0416 GMT
Contract Last Change Pct Change
SHANGHAI REBAR* 3764 2.00 0.05
PLATTS 62 PCT INDEX 118 -1.00 -0.84
THE STEEL INDEX 62 PCT INDEX 116.2 -1.10 -0.94
METAL BULLETIN INDEX 117.43 -1.21 -1.02
#Index in dollars/tonne, show close for the previous trading day
($1 = 6.3807 Chinese yuan)