Thu, 24 Oct 04:19:00 GMT
* Upbeat China PMI helps steel, iron ore bounce off lows
* China PMI at 7-month high in October
* But worries over tightening keep prices weak
By Manolo Serapio Jr
SINGAPORE, Oct 24 (Reuters) - Shanghai steel futures dropped to their lowest level since early July on Thursday and iron ore prices in Dalian slid almost 3 percent, pressured by concerns about slower demand in top consumer China and rising supply.
A preliminary survey showing China's manufacturing activity quickened to a seven-month high in October helped steel and iron ore futures recover from the day's lows although worries over possible monetary tightening kept prices weak.
China's central bank abstained from injecting funds for a third straight session on Thursday, traders said, sending benchmark money rates surging. The bank's move suggests regulators are showing signs of concern that loose liquidity might be fueling another round of risky credit expansion. [ID:nB9N0GR02E] [CN/MMT]
The most-traded rebar contract for May delivery on the Shanghai Futures Exchange
At the Dalian Commodity Exchange
The Dalian contract fell to 916 yuan earlier, its lowest since the bourse began trading iron ore on Oct. 18, before regaining ground shortly after the Chinese factory survey was released.
The flash Markit/HSBC Purchasing Managers Index stood at 50.9 in October, above September's final reading of 50.2 and marking a seven-month high, buoyed by strong new orders. [ID:nL3N0IE0EI]
"This means the underlying economy, particularly the small and medium-scale enterprises, remains healthy," said Helen Lau, senior mining analyst at UOB Kay Hian Securities in Hong Kong.
"But this also gives the government an excuse to tighten policy, like address overheating in the property sector, to steer the economy towards sustainable growth in the longer term."
Authorities in China's capital will strengthen oversight of the property market as they look to rein in surging prices and stabilise market expectations amid surging demand, the Beijing Housing Authority said. [ID:nB9N0I600J]
Rising interest rates and any potential curbs on the property sector will negatively impact steel demand.
Expectations of rising iron ore supply also weighed on prices, both spot and futures. The benchmark 62 percent grade iron ore for immediate delivery in China's Tianjin port stood at $133.20 <.IO62-CNI=SI> on Wednesday, the lowest since Oct. 11, according to data compiler Steel Index.
"The fundamental situation is not encouraging because there's huge supply ahead," said an iron ore trader in Shanghai.
"We are trying to buy something but we are quite cautious because prices are falling. We are trying to get more discount from the sellers."
Global miners are boosting iron ore production, hoping to capture more of a slower-growing market. BHP Billiton
Shanghai rebar futures and iron ore indexes at 0255 GMT
Contract Last Change Pct Change
SHFE REBAR MAY4 3610 -33.00 -0.91
THE STEEL INDEX 62 PCT INDEX 133.2 -0.10 -0.08
METAL BULLETIN INDEX 131.82 -1.68 -1.26
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.0835 Chinese yuan)
(Editing by Muralikumar Anantharaman)
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