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Nanjing Steel Holds Off Buying Iron Ore on Price Drop

July 7 (Bloomberg) -- Nanjing Iron & Steel Co., the Chinese steelmaker part-owned by billionaire Guo Guangchang, put off iron ore purchases and instead ran down inventories as prices of the steelmaking material decline.

Chinese steel mills have tried to resist efforts by iron-ore producers Vale SA, Rio Tinto Group and BHP Billiton Ltd. to raise contract prices, the China Iron & Steel Association said last month. Spot prices for the material delivered to China fell to the lowest in almost five months yesterday.

“We have held off iron ore purchases,” Nanjing Chairman Yang Siming said in a phone interview today. “We’re waiting to see how the market moves. No one is talking about contracts right now.”

The cost of 62 percent iron ore delivered to Tianjin port had an 11th straight drop yesterday, to $128 a metric ton. That compares with third-quarter contract prices of about $145-$150 a ton, leaving only half of contracts exercised, Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, said in an e-mailed note today. He cited unidentified people in the industry.

It’s “difficult to say” if contracts are being defaulted on, Stavseth said by phone today.

Curbing Property Market

China’s iron ore imports fell for a second month in May amid concern construction demand may slow on government moves, including raising mortgage rates, to curb property speculation. Chinese prices for 25 millimeter rebar, steel used to reinforce concrete, have fallen 17 percent to 3,833 yuan ($565.58) a ton from a 2010 high on April 14, data from researcher Beijing Antaike Information Development Co. show.

Chinese steelmakers are likely to cut output this quarter, Xu Lejiang, chairman of Baosteel Group Corp., the country’s second-biggest mill, said on June 8. Weaker demand may prompt smaller producers to default on iron ore contracts in the period, Xu said.

More iron ore is transported at sea than any other dry-bulk commodity, accounting for 29 percent of the total, Drewry Shipping Consultants Ltd. in London estimate. Weaker Chinese demand has helped cut hire-rates for capesize ships that typically carry the material. They’ve slumped 63 percent since reaching a 2010 high on June 2.

To contact the reporter on this story: Alistair Holloway in London at aholloway1@bloomberg.net.

To contact the editors responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net; Hwee Ann Tan at hatan@bloomberg.net.

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