(Reuters) - Iron ore prices on the Chinese spot market were largely unchanged on Tuesday, with traders still unwilling to risk making purchases as they try to determine underlying demand in the coming months.
Indian ore with 63.5/63 percent iron content was being offered at $182-185 including freight, according to the Umetal consultancy, unchanged since last Friday, but there were few takers.
"My personal opinion is that the prices being offered are a bit too high right now and the sellers will have to adjust, but they haven't been willing to do so just yet," said a trader based in Shanghai.
Major global price indexes, which are based on Chinese spot market prices, on Monday remained at their lowest point since early April. Metal Bulletin's 62 percent benchmark .IO62-CNO=MB dropping $0.70 to end at $174.55 per tonne and Platts' 62 percent index IODBZ00-PLT dipping $1.50 to $175.50 a tonne.
Steel Index's 62 percent iron ore benchmark .IO62-CNI=SI was unchanged at $174.50 per tonne.
Steel prices in China have also remained stagnant for a week, with a tonne of rebar on the Shanghai spot market at 4,940 yuan ($759), unchanged since last Tuesday, according to the Mysteel consultancy.
Meanwhile, the most traded rebar contract on the Shanghai Futures Exchange gained some ground on Tuesday after dropping by almost 1 percent on Monday, rising 29 yuan to end at 4,808 yuan per tonne.
HIGHER STOCKS, LOWER DEMAND?
China's iron ore imports rose 9.47 percent year on year in the first four months of 2011, with steel mills needing all the ore they could find in order to keep production levels at more than 1.9 million tonnes a day.
Crude steel production reached a record of nearly 1.95 million tonnes in the first 10 days of May, according to the latest figures from the China Iron and Steel Association, leaving analysts wondering how long such high rates of production can be maintained.
"The key issue is whether steel mills have enough inventory right now to avoid making big iron ore purchases -- that will depend to some extent on whether output stays at current high levels," said the Shanghai trader.
According to Mysteel, imported iron ore stocks at 50 small- and medium-sized steel mills stood at an average of around 40 days of supply by May 20, rising two days in two weeks.
Feng Gangyong, steel analyst with Guangfa Securities, said steel output could start dropping in the next few weeks as mills schedule overhauls to coincide with falling demand and a further tightening of credit.
"Crude steel output at the beginning of May was still high but the power shortages are getting worse and steel production will be affected," he said in a note.
The country is facing what could be its worse power shortages in history, with the State Grid Corp predicting a capacity gap of 30-40 gigawatts over the summer.
How much China's steel mills will be forced to slash production during the peak summer season is still a matter of debate. The chairman of one of China's biggest mills, Baoshan Iron and Steel , told reporters on Tuesday that his company would not suffer too much.
But thousands of smaller mills are expected to bear the brunt of a "load-shedding" programme as the government tries to guarantee stable electricity supplies to residential users.