Iron Ore Cuts Monthly Loss as Chinese Demand May Climb

Iron ore extended gains from the best week since December, trimming February’s losses, on speculation that a move by the biggest consumer China to boost lending will aid growth.

Iron ore with 62 percent content delivered to the Chinese port of Tianjin gained 1.1 percent to $140.50 per metric ton yesterday, after rising 3.5 percent last week, data from the Steel Index showed. The price is down 1.3 percent this month after gaining 2.8 percent in January and 5.8 percent in December.

The proportion of cash that Chinese lenders must set aside as reserves was cut by half a percentage point, effective Feb. 24, the country’s central bank said Feb. 18. That may help spur construction and lift the steel industry’s demand for seaborne iron ore, Arctic Securities ASA said Feb. 20.

“At the start of the period, coming out of Chinese New Year, there were residual concerns about what the landscape in China was going to look like,” said Peter Arden, a Melbourne- based analyst at Ord Minnett Ltd., who’s followed prices for the past 15 years. “There’s more certainty now.”

Steel demand in China normally increases after the weeklong Lunar New Year holidays as construction resumes. The break ended on Jan. 29 this year. China’s steel products stockpiles rose for eight straight weeks to a record of 19 million tons as of Feb. 17, according to the China Iron and Steel Association.

Volatile Prices

Prices may remain volatile in the first half of this year as demand slows from Chinese steel mills and the European debt crisis crimps the outlook for global growth, Sam Walsh, iron ore and Australian chief executive officer for Rio Tinto Group (RIO), the world’s second-biggest exporter, said Feb. 18. Prices may be softer in the first half before demand picks up in the second, Anglo American Plc said last month.

“We’ll have a much better feel for where the growth drivers are” in the second half, Ord’s Arden said by phone from Melbourne. “There’s just a little bit more momentum building towards the end of the year versus where we are at the moment. We’re still recovering a little bit.”

China will probably see little slowdown in growth this year even as its government needs to overhaul its economy to manage expansion over the next two decades, according to World Bank President Robert Zoellick. The economy will probably have a “soft landing” in the near term, Zoellick said yesterday.

The World Bank said in November that China (CNGDPYOY) is heading for a small slowdown of growth in excess of 8 percent in 2012 and has fiscal scope to cushion its economy from an escalation in Europe’s debt crisis. Gross domestic product expanded 9.2 percent last year.

Iron ore is measured in dry tons, or metric tons less moisture, which can represent 8 percent to 10 percent of the weight at Tianjin port.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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