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China iron ore, steel retreat after rally; steel demand outlook firm

Published 10/08/2016, 12:55 pm
Updated 10/08/2016, 01:00 pm
© Reuters.  China iron ore, steel retreat after rally; steel demand outlook firm

* Dalian iron ore hit 2-yr high, rebar 3-1/2-month top on Tuesday

* Chinese steel prices may keep strength to early 2017 -Clarksons

By Manolo Serapio Jr

MANILA, Aug 10 (Reuters) - Chinese steel and iron ore futures pulled back on Wednesday after recent rapid gains that lifted steel to multi-week highs and the raw material to its strongest since 2014.

Firm demand for steel in China, the world's top consumer, had spurred prices of the building material and analysts are optimistic on the outlook for consumption going forward.

Following a visit to two Chinese provinces where he met with several downstream steel users, Clarksons Platou analyst Lee McMillan said "we returned feeling more optimistic on the demand front, as nearly all of the companies we met with expected stronger growth in 2016 than 2015, including in the back half of the year."

"Long story short, while steel oversupply remains a concern given record production levels, we are incrementally more positive on China's near-term demand outlook and and the sustainability of Chinese steel prices into early 2017," McMillan wrote in a report.

The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange SRBcv1 was off 0.4 percent at 2,582 yuan ($389) a tonne by 0238 GMT. The contract touched 2,628 yuan on Tuesday, its highest since April 26.

On the Dalian Commodity Exchange, the most-active iron ore DCIOcv1 slipped 1.2 percent to 497 yuan a tonne, after hitting 511 yuan in the prior session, its loftiest since August 2014.

The rally in futures had helped push up bids for spot iron ore cargoes, lifting the benchmark price above $61 a tonne this week, up 28 percent from early June.

But some analysts remained bearish on iron ore, citing pressure from higher global supply ahead as Australian and Brazilian producers ramp up output.

"Short-term, iron ore supply remains mixed with the tightening spot supply again negated by a surplus in implied forward supply," said Hui Heng Tan, analyst at Marex Spectron.

Iron ore for delivery to China's Tianjin port .IO62-CNI=SI rose 0.8 percent to $61.40 a tonne on Monday, the highest since May 3, according to The Steel Index (TSI).

TSI did not publish a price assessment on Tuesday due to a public holiday in Singapore.

($1 = 6.6469 Chinese yuan)

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