Fri, 24 Jan 04:13:00 GMT
* Iron ore near 6-1/2-month low, down almost 8 pct this year
* Shanghai rebar on course to end 6-week fall, but caution stays
By Manolo Serapio Jr
SINGAPORE, Jan 24 (Reuters) - Iron ore is on course for a third straight week of decline after prices sagged to 6-1/2-month lows and may see further losses ahead with Chinese steel mills reluctant to replenish stockpiles ahead of the Lunar New Year break.
The price of the steelmaking raw material has fallen nearly 8 percent since the start of the year amid slower steel demand in top consumer China. Chinese steel futures rose for a second day on Friday after falling to record lows earlier in the week although analysts and traders doubt the gains can be sustained.
Iron ore for immediate delivery into China's Tianjin port <.IO62-CNI=SI> rose 0.3 percent to $123.90 a tonne on Thursday, according to data compiler Steel Index.
That level was not too far above Tuesday's $123.20 which was the cheapest price for iron ore since July 8. It was down 2.7 percent for the week so far.
"There might be another $3-$4 downside from the current price before the Lunar New Year because there has not been any stockpiling by the Chinese this year which is very unusual compared to the last five years," said Judy Zhu, analyst at Standard Chartered in Shanghai.
"But there's a chance for prices to rebound after the holiday as steel mills re-enter the market."
Leaner demand for steel and tighter access to credit have kept Chinese mills from boosting iron ore stocks ahead of the annual spring festival holiday which is slated between Jan. 31 and Feb. 6 this year.
The move by China's central bank to inject funds into the banking system this week helped ease worries over liquidity, allowing some calm to return to iron ore and steel markets in recent days. But not all are convinced.
"Traders are taking position ahead of the holiday. They are expecting credit to get better, of which I'm very doubtful," said an iron ore trader in Singapore.
"The Chinese government has been very stern with its policy to curb excessive production and shadow banking."
The most-traded rebar for May delivery on the Shanghai Futures Exchange was up 1.1 percent at 3,477 yuan
($570) a tonne by midday, managing a 0.4 percent gain for the week, its first weekly gain in seven.
Standard Chartered's Zhu said rebar futures may have been boosted by better sentiment rather than fundamentals.
"Real demand so far has been pretty soft especially for construction material like rebar so I think there's more downside to rebar prices," she said.
Iron ore futures in Dalian advanced for a third straight session after reaching a contract low of 843 yuan on Tuesday. The most-active May iron ore at the Dalian Commodity Exchange rose 1 percent to 878 yuan a tonne, and was up half a percent for the week, heading to end a seven-week losing streak.
Shanghai rebar futures and iron ore indexes at 0338 GMT
Contract Last Change Pct Change
SHFE REBAR MAY4 3477 +39.00 +1.13
DALIAN IRON ORE MAY4 878 +9.00 +1.04
THE STEEL INDEX 62 PCT INDEX 123.9 +0.40 +0.32
METAL BULLETIN INDEX 124.61 +2.15 +1.76
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.0517 Chinese yuan)
(Reporting by Manolo Serapio Jr.; Editing by Ed Davies)
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