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Iron-Ore Swaps Drop Most in Five Months on China Property Curbs

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Feb. 21 (Bloomberg) -- Iron-ore swaps dropped the most in five months alongside declines in steel futures and equities on speculation China’s call for real-estate curbs would slow demand for the commodity used in construction materials.

The March contract tumbled 3.3 percent to $147.50 a dry metric ton as of 11:47 a.m. in London, according to GFI Group Inc. That was the biggest decline since Sept. 20, based on data from SGX AsiaClear, the largest clearer of the derivatives used to hedge prices and bet on Chinese growth.

Chinese Premier Wen Jiabao urged local authorities to “decisively” curb real-estate speculation and take steps to rein in the property market. October contracts for steel reinforcement bars used in construction fell as much as 3.2 percent to 4,048 yuan ($648) a ton on the Shanghai Futures Exchange. The MSCI All-Country World Index of equities lost 0.9 percent by 1:26 p.m. in London and the Standard & Poor’s GSCI Index of 24 raw materials retreated 1.2 percent.

“The government wants to control housing costs, so there will be less property speculators and demand,” Peter Cho, an iron-ore derivatives broker at ICAP Energy Ltd. in Singapore, said by e-mail today. “Sentiment finally turned. Physical traders are no longer holding in hopes of higher prices.”

Ore with 62 percent content at the Chinese port of Tianjin fell today for the first time since Jan. 28, according to The Steel Index Ltd. The global benchmark slid 1.7 percent to $156.20 a ton, figures showed. The price surged 80 percent since an almost three-year low on Sept. 5.

Shipping Rates

Fewer transactions indicate Chinese traders expect lower prices, Erik Nikolai Stavseth, an Oslo-based analyst at investment bank Arctic Securities ASA, said in an e-mailed report today. A decline in iron ore should help shipping rates recover, he said. Capesize vessels able to hold 160,000 tons of cargo each are the largest carriers of the commodity.

Daily Capesize earnings fell 3.2 percent today to $5,383, the lowest since Jan. 4, according to the Baltic Exchange, the London-based publisher of shipping costs. The drop was the 10th in a row and extended the current losing streak to 28 percent.

Rates have trailed what the ships need to cover expenses such as crew and maintenance for 29 of 37 sessions this year, based on estimated operating costs of $7,758 a day according to Moore Stephens LLP, a London-based accountant.

The Baltic Dry Index, a broader measure of commodities shipping costs, rose 0.3 percent to 737 as returns gained for vessels smaller than Capesizes, according to the exchange. Panamaxes holding about 75,000 tons climbed for a 12th session to $7,112 a day, Supramaxes increased 1.6 percent to $7,376, and Handysizes added 0.1 percent to $6,114 after 20 drops in a row.

To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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