Spot iron ore prices fell for a third day running and bids remained scarce on Wednesday as tighter credit and slower steel demand in top market China kept buyers at bay.
Key Chinese steelmakers, led by industry leader Baoshan Iron and Steel , have cut prices for July bookings, anticipating a seasonal decline in steel demand in the third quarter.
"The market is very weak right now. Almost all the traders have stopped buying cargo," said an iron ore trader in Shanghai, adding that demand was limited to low-grade material such as ore with iron content of 52 percent or less.
Few of the small to medium-sized steel mills in China are in a rush to boost iron ore inventories even if their stockpiles are good for 20 to 30 days versus the normal 30 to 45 days, said an iron ore trader in China's eastern Shandong province.
"Considering the current market situation, there's no need to build stocks. We ourselves are not taking forward bookings," he said.
China's monetary policy tightening campaign, meant to tame inflation that is at near three-year highs, is taking heat off its massive steel sector with the record production pace in the early part of 2011 expected to slow in the second half.
Key iron ore indexes, based on spot Chinese transactions and which global miners use in setting supply contract prices, fell for a third straight day on Tuesday.
Platts 62 percent iron ore index IODBZ00-PLT fell 1 percent to $172 a tonne, its lowest since June 6. The Steel Index's (TSI) own 62 percent benchmark .IO62-CNI=SI dropped 0.9 percent to $171.90, a level not seen since June 8.
A similar index by Metal Bulletin .IO62-CNO=MB eased 0.3 percent to $171.17 per tonne, down for a second day to its weakest since June 6.
Prices are likely to fall further with offers easing on Wednesday.
Indian ore with 63.5/63 percent iron content was quoted at $176-$178 a tonne, including freight, down from $178-$180 on Tuesday, said Chinese consultancy Umetal.
Offers for Australian 62 percent Newman fines dropped to $175-$177 a tonne from $176-$178, Umetal said.
After rising more than 40 percent in 2010, iron ore prices are up just around 1 percent this year, based on the TSI index, as a February rally to record highs above $190 a tonne fizzled out after Chinese appetite stalled along with a drop in steel prices.
The most-traded rebar contract for October delivery on the Shanghai Futures Exchange closed down 0.4 percent at 4,694 yuan a tonne.
Top iron ore exporter Vale said on Tuesday it rerouted 391,000 tonnes of iron ore, its first cargo aboard a new class of giant bulk carriers, to Italy from its original destination of China.
Some traders said the rerouting may have had to do with current dredging works at China's Dalian port, while some said Vale has yet to secure approval from Chinese authorities to enter its ports.
Vale declined to cite the reason for the rerouting.
"The alteration (of the destination) is part of the flexibility in Vale's integrated logistics policy that allows Vale to reallocate the destination of exports, based on the needs of the market," the company said.
Vale is launching the vessels, each with capacity to carry 400,000 tonnes of cargo, in a bid to cut freight costs to its main market China.