Iron Ore Continues to Drop

Despite world prices of steel currently stable, the price of the basic commodity used to make it, iron ore, has again continued to drop.

Prices of iron ore, according to Beijing-based consultancy Umetal, continued to dip for a third day on Tuesday, shedding another $1-$2 per tonne, from Monday's $103.70 per tonne record.

"Inquiries are very limited. It looks like most mills are done with restocking ahead of the holidays," a Shanghai-based iron ore trader told Reuters News.

China, in anticipation of long public holidays, usually replenishes stocks days ahead. Next week the country is poised to observe National Day break. Industry observers, however, surmise most Chinese mills may have already stocked up at this time.

Prices of iron ore have since recovered after hitting a near three-year low of $86.70 per tonne earlier in September, spurred by China's pronouncements it will be embarking on a massive infrastructure construction projects binge worth more than $150 billion.

The consequent ripple effect of excitement in the steel sector led to the rebound in prices of the basic commodity, which could have prodded traders to grab cargoes immediately after the announcement.

But traders soon found out it was too early to jump on the gun.

"The demand on the ground for steel hasn't really changed, it's still weak. Some traders chase prices higher only to find out that actual physical demand is not as good as they thought," the Shanghai trader said.

Others continue to remain cautious.

"We have not bought cargoes for two months now because we are not sure about the future of the steel market. We don't want to take the risk of buying a cargo that can't be easily sold these days," an iron ore trading firm's shipping manager based in Shanghai said.

"The risk of losing money is bigger than earning a profit," he said. His company still has around 200,000 tonnes of unsold stocks at ports, he noted.

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