Spot iron ore prices lost further ground on Monday with key indexes hitting fresh three-month lows on ample supplies and no signs demand would pick up in the near term from top consumer China.The three global iron ore indexes, based on spot transactions, in China fell to their lowest since late March on Friday.
The Steel Index's 62 percent iron ore benchmark .IO62-CNI=SI fell $2.20 to $168.70 a tonne, and a similar gauge by Metal Bulletin .IO62-CNO=MB slipped 29 cents to $169.33.
Platts 62 percent iron ore index IODBZ00-PLT eased 25 cents to $170.50 a tonne.
"Steel prices are going down in China so the outlook for iron ore is also bleak. There's a lot of supply in the market right now, particularly from Australia and Brazil," a Hong Kong-based iron ore trader said on the sidelines of an industry conference in Singapore.
"There will be destruction of demand," the trader said, adding tighter credit in China is denting the country's steel demand.
China has been tightening monetary policy via repeated increases in banks' reserve ratio as well as higher interest rates in a bid to tame inflation that is running at a near three-year high.
Chinese Premier Wen Jiabao signalled for the first time that China would struggle to meet its 4 percent inflation target this year, underlining expectations that interest rates will rise further even as economic growth slows down.
Spot prices are likely to fall more, with miners and traders continuing to cut offered prices amid slack demand.
Offers for Indian ore with 63.5/63 percent iron content dropped to $175-$177 a tonne, including freight, on Monday, from $176-$178 on Friday, Chinese consultancy Umetal said.
Australian 62 percent Newman fines were steady at $173-$175 a tonne, Umetal said.
Prices are likely to remain soft over the next one to two months given the patchy state of the global economy, said a Singapore trader, which does not bode well for the economy-dependent steel sector.
"The recovery in the U.S. is not happening and it's taking time for Japanese demand to come back after the March earthquake.
"If the recovery does not happen in the third quarter, then you will see iron ore prices fall further," the trader said.
Prices of iron ore forward swaps extended losses on Friday, with all contracts through December 2013 falling, reflecting weak investor sentiment.
But traders expect tight supply from India during the ongoing monsoon season to keep spot iron ore prices from falling sharply.India, the world's No. 3 iron ore supplier, is likely to export 90-95 million tonnes of the steelmaking raw material in the current fiscal year to March 2012, about the same level as the previous year, an industry official said.