(Reuters) - Key iron ore indexes dropped to six-week lows and forward swaps fell on thin demand for the steelmaking material from No. 1 buyer China.
But spot offers for high-grade Indian iron ore fines steadied at $184-$187 a tonne, including freight, on Wednesday, as miners held out for better bids that had been scarce recently with steel mills and property developers hit by cashflow problems because of tighter liquidity in China.
China raised bank reserve requirements by another 50 basis points last week to tame stubbornly high inflation, and analysts expect more tightening to come later this year.
"The few Chinese steel mills who are buying are cautiously buying for short-term needs. No one is coming in aggressively," said an iron ore trader in Shanghai.
Iron ore indexes, which global miners use to set quarterly contract prices, were mostly lower on Tuesday.
The Steel Index''s 62 percent iron ore benchmark .IO62-CNI=SI dipped 40 cents to $178.10 a tonne and Metal Bulletin''s similar index .IO62-CNO=MB gave up 37 cents to $178.01. Both are the lowest levels since April 6.
Platts 62 percent iron ore index IODBZ00-PLT was steady at $181.
Softer Chinese steel futures are also dampening sentiment in the spot iron ore market.
The most-traded October rebar contract on the Shanghai Futures Exchange dropped 0.2 percent to close at 4,814 yuan a tonne. The contract hit its lowest in nearly a month last week.
Uncertainty over the outlook for steel demand last week prompted China''s Baoshan Iron & Steel , the industry pricing leader, to keep prices of its main steel products unchanged for June bookings.
Outside of China, Japan''s Nippon Steel Corp , the world''s No. 4 steelmaker, said it will keep prices for May shipments of H-beam steel used in construction steady for a second straight month, with the Japanese market in a post-quake slump.
EXTREME CAUTION
"Traders are showing extreme caution in taking new business and prices are talked about with an anticipated further correction," London Dry Bulk said in a note about the iron ore physical market.
Despite lean demand, sellers have not dropped prices sharply, with many hoping tighter supplies from India will prompt buyers to accept their terms.
Iron ore shipments from India, the world''s third-largest supplier, are expected to be disrupted by rains during the monsoon season which starts around June.
"I expect a bottom for prices at $180 for 63.5/63 grade," said the Shanghai trader.
"They can''t fall sharply from here because Indian supply is tight," he said, adding a recent market sale of 63.5/63 grade was made at $185 a tonne, cost and freight.
But a fall in prices for forward swaps suggested many market players are looking at spot prices dropping below $180 over the next few months.
The Singapore Exchange-cleared June contract fell $2.71 to $169.17 a tonne on Tuesday. The July contract dropped $1.50 to $167.50 and August eased $1.30 to $166.33.