(Reuters) - Spot iron ore prices, hovering at two-month lows, are likely to slip further this week on lean steel demand in top market China, with global miners likely to keep their third-quarter contract prices largely steady after record second-quarter rates.
Based on Platts iron ore index prices for the period March 1 to May 27, the contract price for 62-percent ore should be around $177.1 for July-September, down around 1 percent from a record $179.2 in April-June, based on Reuters calculations.
Global miners like Vale and Rio Tinto use Platts in setting contract prices which jumped 20 percent in the second quarter.
"I don''t think we will see a big move in contract prices for the fourth quarter as well with average prices likely staying between $170 and $180. They could even drop," said a Shanghai-based iron ore trader.
"We don''t see huge demand for steel in China in the next two to three months because construction work is usually reduced during the summer."
Despite the murky demand outlook, China''s daily crude steel output hit another record of 1.984 million tonnes in the middle 10 days of May as Chinese steel mills stepped up production in order to head off potential power shortages in the summer.
China, the world''s top steel producer and consumer, is expected to make a record 680 million tonnes of crude steel this year with demand growth likely to stay high despite further monetary policy tightening by Beijing in the second half of this year, Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, said on Sunday.
RISING ORE STOCKPILES
Indian ore with 63.5 percent iron content was quoted at $178-$180 a tonne, including freight, on Monday, unchanged from Friday, Chinese consultancy Umetal said.
Rising stockpiles of imported iron ore at major Chinese ports, which last week rose more than 10 percent to a record 92.45 million tonnes, suggest many steel mills are shunning imported ore and opting for domestic supplies.
"The small and medium-sized mills have probably increased their use of domestic ore to 60-70 percent from 30-40 percent because it''s cheaper," said a trader in Beijing.
They have the flexibility to do this given the design of their furnaces which can use any kind of ore."
Spot iron ore prices have dropped around 10 percent since hitting record highs near $200 a tonne in mid-February as Chinese stockpiling slowed on signs of thin steel demand.
The Steel Index''s 62 percent iron ore benchmark IO62-CNI=SI> slipped 10 cents to $171.20 a tonne on Friday and Metal Bulletin''s similar index .IO62-CNO=MB gave up 68 cents to $170.97, both the lowest since March 30.
Platts 62 percent iron ore index IODBZ00-PLT was steady at $172.75.Technical charts show Platts index may fall to $156.50 over the next four weeks with a downward wave progressing, said Reuters market analyst Wang Tao.