Iron ore rebounds but nerves frayed Seaborne iron ore prices picked up slightly on

Tuesday as futures prices rebounded from their dramatic fall on Monday. Market confidence remains weak, however, with little hope for Chinese steel demand in the immediate future.

The Kallanish KORE 62% Fe index rebounded $1/t to $17.23/dry metric tonne cfr Qingdao. The Kallanish KORE 65% Fe index regained $1.05/t to $136.88/dmt cfr, and the KORE 58% Fe index fell $2.94/t to $115.32/dmt cfr. 170,000 tonnes of PB Fines sold at $114.10/t with a laycan in 26 July-4 August.

On the Dalian Commodity Exchange, September iron ore settled down CNY 24/t at CNY 754.5/t ($112.67/t), while on the Singapore Exchange July 62% Fe futures settled up $3.97/t at $114.91/t. The same contract for 65% Fe and 58% Fe futures settled up $4.09/t at $131.95/t, and down $8.93/t at $115.14/t respectively.

Chinese scrap prices have continued to decline sharply as mills cut purchasing prices. 6mm+ heavy scrap delivered to mills in the Yangtze River Delta slumped another CNY 84/t to CNY 3,221/t. In Tangshan, billet prices however recovered CNY 70/t to CNY 3,900/t.

After their collapse on Monday, futures prices rebounded on Tuesday. It was unclear however how much this was driven by the closure of short positions. There are rumours that officials are now asking steelmakers to avoid further production cuts in order to stabilise markets, although with weak demand this would only lead to rising inventories.

Confidence in the Chinese economy remains in crisis and this will continue to weigh on steel and iron ore prices. Local governments are increasingly drawing on desperate ideas to stabilise the real estate sector, while a local government banking crisis in Henan province could be the first of many.

Evergrande, the developer whose debts symbolised the first waves of the current crisis last year, is due to announce details of its restructuring by the end of July. The state is expected to become the largest shareholder and former chairman Xu Jiayan is expected to at least reduce his holdings drastically. The restructuring was meant to prevent the company from triggering a wider economic crisis, but Beijing has not needed its help to do just that.

Tomas Gutierrez UK