(Reuters) - Iron ore prices on the Chinese spot market were unchanged on Friday, with traders still cautious and end-users running down their inventories as credit tightens and uncertainties build.
Indian ore with 63.5 percent iron content was being offered at $183-$186 per tonne including freight on Friday, unchanged from Thursday, industry consultancy Umetal said. Prices have drifted down by $3 since the end of last week.
"There's certainly not a lot of commitment to buy full cargoes right now -- the tightening of the money supply has had an influence and demand has quietened down considerably," said an iron ore broker based in Hong Kong.
"A lot of them are just playing wait and see," he said.
The Steel Index's 62 percent iron ore benchmark .IO62-CNI=SI slid $0.60 to $175.30 a tonne on Thursday, while Metal Bulletin's index .IO62-CNO=MB dipped $1.53 to $175.57. Both are the lowest levels since early April. Platts 62 percent iron ore index IODBZ00-PLT fell $3 to $177.
Traditionally, iron ore prices start to level off in the middle of the second quarter as traders and end-users anticipate a seasonal decline in steel demand over the summer.
"We are at that point in the year when things tend to soften -- demand is off a bit, inventories aren't falling as they were and while mills are still producing a lot of material I would expect that to start to ease off," said Graeme Train, analyst with Macquarie Securities in Shanghai.
Last year, iron ore prices plunged more than 35 percent from late April to mid July, but Train said such a decline was unlikely this year as overall iron ore stockpiles remained relatively lower than a year ago.
Industry consultancy Mysteel said mills had an average of about 38 days of supply at the beginning of May, compared to 42 days in mid-May 2010.
Shanghai rebar futures inched down on Friday. The most-active October contract on the Shanghai Futures Exchange dipped 5 yuan to end at 4,825 yuan ($741.747) a tonne.
QUALITY ISSUES
A statement issued on Thursday by China's quality watchdog raised quality concerns on iron ore from India, the world's third largest supplier of the steelmaking ingredient.
The General Administration of Quality, Supervision, Inspection and Quarantine (AQSIQ) said 36 percent of shipments of Indian iron ore to the eastern province of Jiangsu in the first four months of this year were substandard.
China imported 26.465 million tonnes of iron ore from India in the first quarter of this year, down 20 percent on the year.
The problems were with cargoes sent by some traders rather than those from India's large mining companies, AQSIQ said, adding that some traders and inspectors had produced inaccurate shipment reports for iron ore cargoes.
Traders said inspectors in China could expect to find that the iron content of a delivery is as much as 3 percentage points lower than specified in the original contract.
Buyers are allowed to renegotiate the contract or even reject the cargo if the discrepancy is too high, but that rarely happens, traders said.
A Shanghai-based trader said little in the AQSIQ notice would surprise Chinese importers.
"This happens all the time and I can't see it having much of an impact on trade between China and India -- all in all the demand is still here," he said.
AQSIQ said the blame lay with "unscrupulous sellers" and "unscrupulous inspectors", but the Hong Kong broker said the buyers were equally to blame and that many of the problems arise when the market loses buoyancy.
Many bought cargoes at a particular grade on the expectation that prices will rise once they are delivered to China, but when the prices do not increase, buyers seek to eke out their purchases with lower-grade ores to make a profit, he said.
"We have suffered this issue on every single cargo this year, not only on iron ore but also thermal coal," he said. ($1 = 6.505 yuan)