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Iron ore loses steam as supply offsets China demand
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Tuesday, 22 Jan 2013

Reuters reported that after 2013 started with a bang for the iron ore market, an increase in global supply is expected to outpace a recovery in demand from top importer China, meaning prices this year may struggle to regain their January peaks.

A month long rally in iron ore has lost steam after prices hit 15 month highs this month. And with the economy unlikely to rebound briskly this year, China's raw material demand may not rise sharply enough to suck in more output from global miners such as Rio Tinto.

According to the median estimate of a Reuters poll of 17 analysts, benchmark 62% grade iron ore .IO62-CNI=SI is forecast to average USD 125 a tonne this year. That is slightly lower than the 2012 average of USD 128, as analysts predict weaker prices in the second half when supply ramps up.

An aggressive restocking drive by Chinese steel mills lifted iron ore to USD 158.50 a tonne on January 8th, the highest since October 2011. The price has since fallen more than 8%, although tight supplies should keep prices high in the first half.

Mr Graeme Train analyst of Macquarie commodity said that "The next price rise will be real demand-driven."

Mr Train said that "Typically, real demand-driven price increases are much less exciting than restocking-driven price increases."

More stock building may emerge just ahead of, and after, the Lunar New Year break in February, although the magnitude may not be as strong as in previous years given uncertainty over Chinese steel demand. In February 2011, iron ore surged to a record high near USD 200, backed by a spike in Chinese steel prices.

However, the plunge in iron ore prices to three year lows below USD 87 in September marked a turning point for the raw material that is the biggest money-spinner for top producers Rio, Vale and BHP Billiton.

Source - Reuters


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