China sets its GDP growth target at 7.5 percent this year, the first time for the government to lower its economic growth target since 2005, according to a government work report delivered by Premier Wen Jiabao at the Fifth Session of the 11th National People's Congress (NPC) on March 5th. Instead of anti-inflation, the government gives top priority to steady growth in 2012.

How will Chinese macroeconomic policy function and steel industry be influenced under current circumstances that main developed economies lack growth momentum and unemployment rate stays high, Chinese economy growth slows down while price grows up, and real estate market regulation is in key stage?

GDP growth rate object drops for the first time in 8 years. What attracts attention in government work report in 2012 is that GDP growth rate object was trimmed to 7.5% from 8% since 2005. Based on historic data, real GDP growth always exceeds object set at the beginning of the year, so we anticipate that GDP growth in 2012 may still maintain 8.5% or so.

But the cut of GDP growth target signals that economic growth model will emphasis on quality and efficiency of economic growth rather than only rely on scale expansion and resources consumption. What’s more, Chinese macroeconomic policy of 2012 is to maintain steady so there is little likelihood that the government will release stimulating policy.

Consumer price index (CPI) object is higher than market anticipation and imported inflation pressure still exists. The inflation object is maintained at 4%, same as last year (lower than the real inflation of 5.4%) and higher than market anticipation of 3.5% or so. Although recent price trend shows a seasonal bounce for CPI in January, price in the next few months may continue descending since the 2nd half of 2011 given the lately price drop of pork and vegetables and 8 years of growth in a row of domestic grain production, so CPI object of 2012 is not hard to fulfill. But that does not mean inflation pressure disappears completely, as recent crude oil price keeps hovering at high level and imported inflation still exists in the medium term. The report also claims to rein this year's consumer price growth at around 4% after comprehensively considering factors of imported inflation, production factors cost growth and resident consumption capacity, and also reserves room for price reform. The national policy in 2012 shows that the government still remains cautious over inflation.

China will continue to carry out anticipatory adjustments and fine-tuning in terms of monetary policy. China targets a 14% growth in broad money supply, or M2, for 2012, slightly higher than actual increase of 2011 but at record low in recent years. So the possibility of comprehensively easing monetary policy in 2012 is little and anticipatory adjustments and fine-tuning will be the main task. It is anticipated that China central bank will choose open market operation as the main monetary policy and the frequency of decrease of RRR (Reserve Requirement Ratio) will be lower than market expected, and with gradual fall of inflation, interest cut may start in the middle of the year and will happen once or twice in small range through the whole year.

Financial deficit in 2012 is set at CNY800 billion, CNY100 billion less than last year, and budget deficit falls to 1.5% of GDP. Based on historical data, fiscal deficit to GDP ratio is usually maintained at 2% or so when economy growth is predicted to slow down, but the cut of fiscal deficit to GDP ratio this year under the circumstances that economy growth is slowing down shows that fiscal stimulus may be weaker than expected. Interestingly, the report said the focus is to improve structure of financial expenditure, stress the key points, and emphasize more on the livelihood of the people, so there will be “increase and decrease” for financial expenditure in 2012, and financial support to people’s livelihood fields will be strengthened in the near future; and the planned growth of investment in water conservancy project and housing project for low-income urban residents is higher than the other sectors, according to the Ministry of Finance’s 2012 Fiscal Budget Report (draft).

Influence analysis on steel industry and its main downstream industries

Real estate industry

As to real estate market, the report emphasizes to firmly implement and gradually improve policies and measures for discouraging speculative or investment-driven housing demand, build on progress made in regulating the real estate market and reduce housing price back to normal level. But the wording is less harsh than that in government work report of 2011. And at the same time, the report requires to take measures to increase ordinary commercial housing supply to prevent economy growth slowing down caused by overdoing of real estate regulation, and shows that the country is trying to increase supply to restrain housing price from soaring when taking measures to depress speculative or investment-driven housing demand at the same time. We anticipate that the basic trend of commercial housing regulation policy in 2012 will not change, and commercial housing sales of the year will decrease by 8%-12%. But the decrease will be offset by construction of low-income houses. 7 million units of low-income housing are planned to be constructed in 2012, lower by 3 million units from 2011; and 5 million units of low-income housing are required to be completed, 700 thousand units more than last year.

As to demand for steel products, construction of low-income housing will stimulate demand for some construction steel products. The 5 million units of low-income housing required to be completed in 2012 will create a demand for 18.85-21.13 million tonnes of construction steel, on the assumption that each unit of low-income housing averages 65 square meters and that each square meter needs 0.558-0.065 tonnes. But nowadays low-income housing construction still faces problems like lack of fund, real demand for construction steel products needs to be watched, and the country is still keeping tight control on commercial housing, so the predicted growth in demand for construction steel products in 2012 will be modest.

Water conservation and hydropower industry

On the basis of prior NO.1 document of central government in 2012, the report further emphasizes to improve irrigated area facilities and small-sized farmland water conservation works; speed up conservancy of middle and small-sized rivers, reinforcement of small reservoir and integrated control of flood and geological disaster.

The fiscal budget on water conservation project in 2012 is increased by 84% than 2011. Actually the State Council routine meeting early in February of 2011 has decided to finish reinforcement of 5400 small-sized reservoirs before the end of 2012 (average investment of CNY4.5 million on each reservoir, CNY24.4 billion in total). Calculated by 100-130 tonnes of steel products for each reservoir reinforcement, there will be a demand for 500-700 thousand tonnes of steel products in 2012.

Besides, the report also mentions to develop hydropower, and improve proportion of new energy and renewable energy. And National Energy Administration announced earlier that the scale of permitted construction of hydropower projects in 2012 is 20 million kilowatt, up by 57% than 2011. Construction of hydropower station often stirs demand for steel products.

The report says China will continue to firmly control bank loans to high energy-consuming, high-polluting and over-capacity industries this year. And at the same time, it proposes to control increasing volume, optimize inventory volume, promote merger and acquisition of enterprises of some industries like automobile, steel, shipbuilding and cement to improve industry concentration and economics of scale. It means that steel products demand of related industries will be limited, and actually sales growth rate of automobiles and engineering machinery has reached record low based on the data of January 2012.

For the consumption aspect, the report underlines expanding consumer demand and set up a permanent mechanism for boosting consumption. The earlier national business work meeting also proposed to conclude the experience of “home appliance to the countryside” and “old for new”, and make following policies in time. If related policies are executed during Q1, the prosperity of home appliance industry may improve during the second half of the year, and demand for steel plate will be stimulated then.

In sum, Chinese economy will maintain a steady growth in 2012, the possibility of policy easing is slight and policy environment will be better than 2011. Demand for steel products may continue to increase as a result, with limited range. We anticipate that apparent consumption of crude steel in 2012 will be 680 million tonnes, slightly more than last year.

Steel price has risen and may keep steady for the short term due to the favorable factors like iron ore price rise, EXW price rise by steelmakers and inventory decrease. But we should notice that the earlier price rise is the result of pull-up of steel mills and traders, so downstream demand increase still needs to be watched, which will eventually determine the steel products price trend in the medium term.

Chinese consumers of thermal coal and iron ore are asking traders to defer cargos and – in some cases – defaulting on their contracts, in the clearest sign yet of the impact of the country’s economic slowdown on the global raw materials markets.

The deferrals and defaults have only emerged in the last few days, traders said, and have contributed to a drop in iron ore and coal prices.

 “We have some clients in China asking us this week to defer volumes,” said a senior executive with a global commodities trading house, who warned that consumers were cautious. “China is hand to mouth at the moment.”

A senior executive at another large trading house also confirmed there had been defaults and deferrals in both thermal coal and iron ore.

China’s economy grew 8.1 per cent in the first quarter from the same period of 2011, the weakest rise in nearly three years but still pointing to a so-called soft landing.

Other key economic indicators followed by Chinese policy makers, including electricity consumption, rail cargo volumes and disbursement of bank loans, point to a sharper slowdown, suggesting the risk of a hard landing.

Soft commodities such as soya beans and cotton have also seen Chinese customers default in the past two weeks, a trader at a third global trading house said.

Highlighting a “worrying” weakness in consumer spending inside China, Kim Youngha, the head of Samsung’s China operations, said he expected the domestic market for technology goods to grow 7 per cent this year in China, down from 10 per cent last year.

Yu Song, analyst at Goldman Sachs, told clients last week that Chinese economic activity was “exceedingly weak”. In response to recent dismal data, the Chinese central bank has cut the portion of deposits that banks must hold as reserves to encourage the flow of credit.

As the world’s main engine of commodities consumption, the Chinese business cycle is key for raw materials markets. The country is particularly important for bulk commodities such as iron ore, used in steelmaking, and thermal coal, used to fire power plants.

It is the world’s largest importer of iron ore, accounting for roughly 60 per cent of the seaborne market, while it ranks as the second top importer of coal, behind Japan and with a market share of 20 per cent of global trade.

Because of slowing economic growth and the high domestic stockpiles of many raw materials, China’s commodities imports in April, the latest month for which data are available, were unexpectedly weak, with iron ore imports hitting a six-month low and copper imports at an eight-month low.

Iron ore and thermal coal are critical to the profitability of blue-chip miners such as BHP Billiton, Vale of Brazil, Rio Tinto, Xstrata and Anglo American. The miners, under pressure from investors, have announced they will reduce investment in the next few years due to cooling commodities markets.

The price of the benchmark iron ore with 62 per cent iron content in Singapore fell on Friday to $135.25 a tonne, down nearly 9 per cent from the end April.

Colin Hamilton, commodities analysts at Macquarie, said sentiment in the iron ore market was “pretty weak”.

“People are worried about China and China is worried about Europe,” he said. “Everyone is worried about growth. You cannot decouple Europe from China.”

Thermal coal prices in the Australian port of Newcastle, the benchmark for Asia, fell on Friday to $97.5 a tonne after breaking below the $100 level earlier this month for the first time in 18 months.

The slump in thermal coal prices is also due to higher exports by US miners, which face lower domestic demand because of the lowest natural gas prices in a decade.

India’s Public sector trading giant MMTC has inked pacts with Japanese and South Korean steel companies including Posco, to supply 2.8 MT of iron ore annually for a period of three years.

"We have signed iron ore supply contracts with five Japanese firms and one South Korean company for a period of three years. The exports are expected to start from July this year," an MMTC official said.

Under the pact, MMTC will supply 2.3 MT of iron ore per annum to five Japanese firms including Nippon Steel, JFE Steel and Nisshin Steel besides 0.5 MT to South Korean major Posco, the official said. An official delegation of MMTC had visited Tokyo and Seoul this month to sign contracts with the firms.

The Cabinet, in March, had approved export of iron ore by MMTC to Japanese and South Korean steel mills for three more years. The supply of iron ore has been a core element in the bilateral ties with Japan and South Korea, the official said.

MMTC would supply iron ore (lumps and fines) of grade (plus) 64 Fe, or high grade content, to Japanese and Korean steel mills from country's largest iron ore miner NMDC's Baildila mines in Chhattisgarh.

Brazilian mining company Vale SA remains confident the price of iron-ore will rise in the second half of 2012, relieving environmental and economic pressures on the company which have hurt growth and delayed new projects.

Iron ore .IO62-CNI=SI fell to its lowest level in nearly six months on Friday, slipping 1.7 percent to $131.30 a metric ton (1.1023 tons). The medium- to long-term price, though, should be in the range of $120 to $180 a metric ton, Jose Carlos Martins, Vale's head of ferrous metals and strategy, said at a lunchtime gathering with reporters in Rio de Janeiro.

Demand for steel remains strong in China, thanks to housing, Vale Chief Financial Officer Tito Martins added. At the same time, declines in prices push higher-cost Chinese producers out of the market, putting a floor under price declines.

Higher prices would help Martins' boss, Chief Executive Murilo Ferreira, who completes his first year as the company's leader this month.

"The world is living through one of its most difficult periods for credit, and projects have to be considered carefully," Ferreira said. "Banks are much more conservative in the way they assess lending."

Tight credit, sluggish world growth and government demands for a bigger cut of Vale's iron-ore, copper, nickel, coal and other minerals have forced tighter fiscal discipline on the company, Ferreira said.

Such factors could lead to Vale abandoning the $5 billion Simandou iron-ore project in Guinea, and they have prompted Vale to reevaluate its $5.9 billion Rio Colorado potash project in Argentina, he added. Coal projects in Colombia have not worked out as planned and Vale may sell them.

The Guinea government's request for a 50 percent stake in all transportation assets, a royalty based on steel rather than iron-ore prices, and a bigger share of the mine itself could make the project "inviable," Chief Financial Officer Tito Martins said.

"We have to understand that governments all over the world are doing things like this, in Brazil too," Martins said. "While we respect governments' right to act, we have to say that their actions may make it impossible for us to make investments."

Tight credit and a desire to focus on mining activities related to the steel industry have led Vale to put its Colombia coal assets up for sale, said Roger Downey, Vale's coal chief.

The company is also selling its oil exploration rights in Brazil and banks interested in managing the sale say they already have buyers for the blocks, Jose Carlos Martins said.

Vale faces problems at home similar to those abroad, Tito Martins said. Delays in winning environment licenses have helped Australia pull ahead of Brazil as the world's largest iron-ore producer.

The government's effort to collect 30.5 billon reais ($15.25 billion) in back taxes also threatens Vale's investments abroad. Vale says it already paid the taxes to foreign countries and the attempt by the government to get Vale to pay those taxes amounts to illegal and unfair double taxation.

Vale, along with other companies and industry associations, is disputing the back taxes in Brazil's highest court.

The company has so-far avoided making any payment because a court injunction says it does not have to until the court rules on whether the tax assessment is legal.

"We're absolutely confident that the Supreme Court understands the situation and the dimension of our investments," Ferreira said.

Ferreira added that Vale's lawyers had assured him the company does not need to post a financial bond with the court, a measure akin to a check the government could cash for the taxes should the company lose the dispute.

Vale would be forced to reduce or cancel investments if it had to pay the bond, he said. Similar problems face all Brazilian companies with operations abroad, he added.

In China, Vale continues to have its giant "Valemax" ships barred from Chinese ports. The ships, some of the biggest afloat, can carry nearly 440,925 tons of iron ore and are double or more the size of conventional ore carriers.

While China's main shipping association see the ships as a threat to their business, Vale sees them as essential to competing against Australian producers who are closer to China, the world's largest iron ore market.

Vale is working with Chinese steelmakers and port associations to win approval for the Valemaxes to dock at Chinese ports, Jose Carlos Martins said.

The ban on the ships, announced in January, is based on unspecified safety concerns, a situation Ferreira called strange considering that most of the 35 vessels are being built in Chinese shipyards.

Vale also commented on ThyssenKrupp's (TKAG.DE) decision to sell its two-year-old, 5.2-billion-euro steel mill in Rio de Janeiro. Vale owns 27 percent of the mill but is not involved in its day-to-day operations.

"The company does not want to become a steelmaker but we will protect our fiduciary duties," Ferreira said, adding that they had no preference over who might buy the mill, whose potential sale was announced on Tuesday.

Brazilian mining giant Vale confirmed Wednesday that it met with the China Shipowners Association (CSOA) to try and resolve the dispute surrounding its Very Large Ore Carriers, which are currently not allowed to dock in Chinese ports because of their size. Vale said in a statement it met CSOA with the “objective of exchanging ideas in regards to the rules about the docking of our VLOCs in Chinese ports.” Vale did not say when the meeting took place.

“Both parties share the same goal, that the ore arrives in China at the most competitive prices in order to benefit the Chinese economy,” the statement said.

Vale’s VLOCs, capable of transporting 400,000 mt, have been banned from entering Chinese ports since January. The ships are a vital part of Vale’s attempts to reduce freight rates in order to compete with Australian miners who are nearer to the lucrative Chinese market.

Vale’s first VLOC began operating in late 2011 and the company hopes to finish construction of its 35-strong fleet by the end of 2013, at a cost of about $4.2 billion.

To get around this problem the company has been freighting to its transshipment terminal Subic Bay, in the Philippines, where it has been loading on to Capesize vessels.

Ukraine’s output of manganese ore, including concentrate and sinter, dropped 47.7% year on year in April to 68,100 mt from 130,100 mt produced in April 2011, UkrFA said. Compared with March production of manganese ore fell 0.9% from 68,700 mt.

Ukraine produced 68,100 mt of manganese ore concentrate in April, down from 91,800 mt produced a year earlier, while output of sintered ore dropped to zero from 38,300 mt in April 2011.

It manufactured 240,300 mt of ore in January-April, down 53.4% from 516,100 mt produced in the same period of 2011. Output dropped as domestic ferroalloys plants had dramatically reduced production, reflecting the high cost of power and weakening demand from the steel sector, UkrFA said.

In the first four months of the year output of manganese ore concentrate fell by

38% to 240,300 mt from 387,600 mt and production of sintered ore dropped to zero from 128,500 mt, the association said.

Brazilian miners exported 18.9 million mt of iron ore in April, down 20% from 23.7 million mt in the same month last year, figures released Wednesday by the country’s association of iron ore producers, Sinferbase, showed.

Accumulated exports for the first four months of the year fell 11% to 79 million mt, from 88.5 million mt in the same period last year.

The iron ore was exported by Vale, Anglo American, MMX and Samarco, a joint pelletizing venture between Vale and BHP Billiton.

Vale accounted for 87% of Brazil’s exported iron ore in April, excluding the figures from Samarco, reaching 16.4 million mt.

Some Chinese steel mills have postponed delivery of iron ore from miners including top supplier Vale as a slow steel market cuts demand for the raw material and producers expect a further drop in prices, sources at mills and traders said on Thursday.

The move reflects slowing appetite from the world's biggest consumer of iron ore, which is also a huge market for other commodities, amid a shaky global economy that has prompted mining giant BHP Billiton to put the brakes on an $80-billion spending plan.

"We are postponing shipments from a major miner because now no one has the courage to buy cargoes due to arrive in June," said an iron ore purchasing official with a midsize Chinese steel mill.

"We are buying the long-term iron ore contract on a quarterly pricing basis, but it's obvious that spot iron ore prices will fall further in June. Some Chinese steel mills have started to think about shipment deferrals since April."

The mills are delaying iron ore deliveries as sluggish steel demand in China, the world's top producer and consumer, dragged down prices to multi-month lows this week, squeezing already thin profit margins.

An official who buys iron ore for another medium-sized Chinese steel mill which has a long-term contract with top miners said his company had delayed shipments since last month and been reluctant to make any recent purchases.

"They're (Chinese mills) already knocking them back on the contracts. I know sellers on long-term contracts who have told me that they've had stuff deferred," said a physical iron ore trader in Singapore, who said the postponed shipments include those with contracts with Brazil's Vale and BHP Billiton.

BHP Billiton declined to comment. Officials for Vale in China were not immediately available for comment.

BHP Billiton on Wednesday said it was rethinking its $80 billion five-year expansion plan, mapped out in 2011, given the more challenging global environment.

Chinese mills also sought to delay shipments in October when iron ore prices slid nearly 31 percent as weak steel demand forced producers to curb output.

At that time, miners had to tweak pricing mechanisms to more closely reflect spot rates. Previously, quarterly contract prices were based on the average of the prior quarter instead of the current three-month period.

Before prices were based on quarterly and then spot rates in the past two years, iron ore contracts were set annually every year for four decades.

"Steel mills and miners are now more flexible in taking or delivering cargoes. When prices rise quickly, miners are using various excuses to delay shipments and choose to sell when they believe prices are good enough," said the official with the first steel mill.

The shipment postponements meant more cargoes were finding their way into the spot market, driving down prices that are already 30 percent down from last year's peak.

But given the fat margins that iron ore miners make on sales, traders say Vale, BHP Billiton and Rio Tinto are unlikely to incur any losses from their biggest revenue earner.

"From a producer point of view even if they sell in the spot market for $120, they're still earning $60-$80 a tonne," said a Hong Kong-based trader.

"It's not even about making a loss, it's just about less money to make."

Analysts and traders say China has to curb steel output further to depress supply and fuel a recovery in steel prices that would revive appetite for iron ore.

China's crude steel output eased 1.6 percent to 60.575 million metric tons in April from a record high in March, government data showed on Tuesday.

Australian coking coal miner BHP Billiton-Mitsubishi Alliance has offered June-loading contracts of its top-quality hard coking coals at $220-225/mt FOB, up $6/ mt compared with May, Asian steelmakers said.

Premium low-volatile HCCs Peak Downs and Saraji were heard offered at $220- 225/mt, up from $216-217/mt for May, while premium mid-vol Goonyella was offered at $216-219/mt FOB, also up $6/ mt from $210-213/mt in May, sources said. A Melbourne spokesman for BHP

Billiton would not confirm the offers, and refused to comment.

Spot prices have picked up by close to $15/mt since the recent low reached in mid-March, after strikes tightened the market for higher-quality Australian coals. The market is currently awaiting a crucial ballot by BMA workers due to take place Friday, which has the potential to end months of industrial action at the company’s Queensland mines.

BMA prices the majority of its coking coal on a fixed monthly basis, while some Asian customers still have a portion of their purchases priced quarterly.

Restrictions on nickel-ore exports by Indonesia may force Japan, the world’s third-largest producer of refined metal, to source raw material from other suppliers or reduce output, Sumitomo Metal Mining Co. said.

“If the ban continues, we’ll need more ore from the Philippines and New Caledonia,” said Toru Higo, general manager of nickel sales and raw materials at Japan’s top producer. Indonesia banned exports of 14 raw minerals effective May 6, with an exception for miners that plan to build local processing facilities, Energy and Mineral Resources Minister Jero Wacik said. The miners will be taxed 20 percent on ore shipments.

Nickel, used to strengthen stainless steel, has fallen 10 percent this year, extending last year’s 24 percent loss on slowing demand in China and concern over Europe’s debt crisis. Indonesia’s 20 percent tax on ore exports will boost prices in the mid-term, while large stockpiles in China will limit short- term impacts, China International Capital Corp. said on May 8.

“The ban may increase costs for securing raw materials,” said Syusaku Nishikawa, a Daiwa Securities Capital Markets analyst. This may also force producers in East Asia to cut output, tightening global supplies, he said.

The restriction applies to copper, lead, nickel, gold, silver, zinc, chromium, bauxite, manganese, molybdenum, platinum, antimony, iron ore and sand iron.

‘Cut Production’

Sumitomo sees “little impact” near term as it has stockpiles and other suppliers, Higo said in an interview yesterday. “If it gets worse, the new rules will force some producers to cut production.”

Nickel for three-month delivery in London fell 1 percent to $16,820 a metric ton at 3:43 p.m. Tokyo time. The metal is the worst performer this year on the London Metal Exchange.

China boosted imports of bauxite and nickel ore to build stockpiles before Indonesia, its largest supplier, curbed shipments, Barclays Capital said April 23. China and Russia were the biggest producers of refined metal in 2010, according to London-based metals consultant CRU.

China’s nickel ore imports jumped 73 percent to 3.67 million tons in March from a year earlier, data from the Beijing-based Customs General Administration showed April 23.

Philippines, New Caledonia

Japan imported 3.65 million tons of ore in 2011, according to finance ministry data. Indonesia supplied 1.95 million tons, or 53 percent, followed by New Caledonia with 27 percent and the Philippines with 19 percent, the data showed.

Sumitomo Metal will produce 41,000 tons of electrolytic nickel and 22,200 tons of ferronickel in the year started April 1, little changed from a year earlier, it said April 2.

Pacific Metals Co., Japan’s top ferronickel producer, spokesman Kosuke Naradate said the company was still trying to collect more information about the ban.

The Indonesia Mining Association estimated in March that the ban will cut nickel-ore and bauxite exports by as much as 75 percent this year. Indonesia shipped 33 million tons of nickel ore and 40 million tons of bauxite last year, according to Syahrir Abubakar, the group’s executive director.

The tax on miners is unlikely to affect prices in the near term because China has been stockpiling and will find material elsewhere in the coming months, Morgan Stanley said in a report on May 14. China’s nickel pig iron producers source just over half of their ore from Indonesia, the bank said.

China's daily crude steel output hit a fresh record of 2.045 million tonnes in the first 10 days of May, up 0.5 percent from the last 10 days of April, data from the China Iron & Steel Association (CISA) showed on Friday.

CISA estimates the country's overall output based on its major members - consisting of around 80 medium- and large-sized steel mills, which produce around 80 percent of the total.

Spot iron ore prices fell to their lowest in nearly three months on Thursday, knocked by limited buying interest from Chinese mills adjusting to weak steel demand, which has led to some traders holding cargoes rather than selling.  

Steel futures in top consumer China regained some ground after falling for four straight days, though prices remained within striking distance of 5-1/2-month lows hit on Wednesday.

 The gain in Shanghai rebar futures followed a rebound in other commodities, which are drawing some investor interest after similarly sinking to multimonth lows this week.

"Fundamentally I still don't see any near trigger point that will support steel prices, so I believe there's further room for correction," said a Hong Kong-based iron ore trader.

 The most-traded rebar contract for October delivery on the Shanghai Futures Exchange rose 1 percent to 4,092 yuan ($650) a tonne at the close.   

Rebar, used in construction, earlier hit a session low of 4,051 yuan, near the previous day's low of 4,050 yuan, a level last seen on Nov. 28. 

Spot steel prices have also been dropping, with billet in China's key Tangshan area at 3,650 yuan per tonne on Wednesday from 3,820 yuan in late March, traders said.  

The sustained decline in iron ore prices has forced some traders to stop selling cargoes.

"One of the big traders could not find good buyers at this time so they have held some China-bound ships in Singapore for several weeks," said a Shanghai-based trader. 

"Because they can't get the price they want in the current market and they probably don't want to take any losses at the moment, so they choose to wait," he said, adding the capsize cargoes include iron ore from Brazil and Africa. 

Spot sales by miners this week have drawn little interest, with prices either falling or cargoes being skipped.   

"The general situation has not changed. Steel production is still high and demand is still sluggish. Steel mills should start cutting production to reduce supply of steel in the market, then this will help steel prices to recover," said the Shanghai trader. 

On a daily basis, China's crude steel output topped 2 million tonnes in April versus 1.986 million tonnes in March, based on the latest data from China's National Bureau of Statistics.

Reflecting the weak market, there were no deals for a second day on Wednesday on China's physical iron ore trading platform, which debuted last week, according to the website of platform operator China Beijing International Mining Exchange.

Shanghai rebar fell for a fourth straight day on Wednesday, hitting its lowest in more than five months, with a slowing Chinese economy clouding the demand outlook in the world's top consumer and halting producers' buying interest for iron ore.

Shanghai rebar was also caught up in broad-based weakness across risk assets as investors sold stocks and commodities in response to worry about the global economy exacerbated by political uncertainty in debt-laden Greece. 

BHP Billiton , the world's top miner and third-biggest iron ore supplier, warned that commodity markets could cool further and said investors had lost confidence in the longer-term health of the global economy.

Spot iron ore dropped to its weakest level since late February and has given up this year's gains to trade down nearly 2 percent year to date, as a Chinese slowdown threatens to curb steel output further.     

The most active rebar contract for October delivery on the Shanghai Futures Exchange fell nearly 1 percent to close at the session's low of 4,050 yuan ($640) a tonne, a level last seen on Nov. 28.

Construction-used rebar, or reinforcing bar, has lost more than 3 percent since last Friday.

Mirroring steel's weakness, benchmark iron ore with 62 percent iron content .IO62-CNI=SI dropped 0.6 percent to $135.90 a tonne on Wednesday, according to Steel Index, matching a low last seen on Feb. 22.  

"We've been talking to some steel mills and they have stopped buying iron ore for almost two weeks now," said an iron ore trader in the port city of Rizhao in China's Shandong province.

"Most mills have a minimum inventory of 10 to 15 days of ore, which means they have to buy now. But they can choose to wait for another week, there's no rush because there is abundant supply in the spot market."

There were no deals on Tuesday on China's physical iron ore trading platform, which debuted just over a week ago, according to the website of platform operator China Beijing International Mining Exchange.    

Traders said a further cut in China's steel output should help stem a slide in prices that have been weighed down by slow-moving inventories.

Government statistics show that China's crude steel output dropped 1.6 percent from a record high in March to 60.575 million tonnes in April.  

A decline in steel output would cut demand for iron ore, but if steel prices recover, Chinese mills could boost output again which should revive buying interest in the raw material.

And some traders are positioning for a recovery in the market.

The Rizhao-based trader said his company was still buying iron ore, with a total 60,000 tonnes either on the way to China or loading on a ship.    

"Prices have fallen so low so maybe next week could be a turning point for the market," he said.

German group ThyssenKrupp is considering selling its steel mills in Brazil and the US or engaging in new strategic partnerships to help offset slower demand and higher production expenses, the company said in a statement.

"The review will be carried out with an open mind," Essen-based press official Stefan Ettwig said. "In the meantime we will not be commenting publicly on possible plans, partners or buyers or on corresponding rumors."

The firm has decided to investigate options in all directions for the plants of the Steel Americas division in Brazil and the US.

Both mills are calculated to have a total book value of 7bn euros (US$9bn).

The Steel Americas division strategy was based on two basic premises, that low cost slabs were to be produced at the ThyssenKrupp CSA mill in Brazil and shipped with cost advantages to the processing plant in the US.

However, the two regions' different growth rates are calling the strategy into question, as the US economy is showing "no major momentum," while production costs in Brazil are rising "disproportionately."

"We continue to believe that both plants will hold leading positions in their respective markets in terms of technology and conversion costs. But since the plans for the project were made, the economic parameters both in Brazil and in the US have changed from our original assumptions," executive chairman Heinrich Hiesinger said.

The German firm controls 73.1% of the ThyssenKrupp CSA plant and local iron ore miner Vale holds the remainder.

The firm intends to push ahead with the ongoing ramp-up of the two plants.

ThyssenKrupp CSA produced around 1.7Mt of slabs in the first half of the current fiscal year, and the US plant shipped around 1.4Mt of steel to customers in the same period.

The Brazilian plant is expected to reach maximum capacity of 5Mt/y by end-2012 and sales are anticipated to reach 3bn-3.5bn reais.

Germany's two biggest steelmakers, ThyssenKrupp and Salzgitter, gave a grim outlook for the rest of the year as the euro zone crisis crimps demand for factories and new equipment.

ThyssenKrupp forecast a slump in adjusted operating profit to a medium three-digit million euro range in the 12 months through end-September, down from 1.76 billion euros ($2.26 billion) last year.

Salzgitter said it still expects to post stable sales this year as well as a pretax profit, though it reiterated it would be difficult to match last year's earnings figure.

Data showed on Monday that strong industrial production in Germany could not offset a slide in output at euro zone factories in March, signalling an oncoming recession may be worse than expected.

European officials have repeatedly said the slump will be mild, with a recovery in the second half of this year. But the strong economic data seen in January has unexpectedly faded and business surveys point to a deeper downturn, with the drag coming from a debt-laden south, epitomised by Greece, Spain and Italy.

ArcelorMittal, the world's largest steelmaker, said earlier this month it sees steel consumption dropping 2 percent in Europe this year, though a surge in North American demand would lead to global steel consumption growing by between 4 and 4.5 percent.

Kloeckner & Co, Europe's biggest independent steel trader, warned last week it would only reach its 2012 profit target if Europe's economy improved in the second half of the year.

ThyssenKrupp posted a net loss of 587 million euros in its fiscal second quarter through the end of March, down from a year-earlier profit of 272 million, due to costs at its mills in Brazil and a slump in prices in Europe.

Salzgitter, Germany's No.2 steelmaker, posted a slightly bigger than expected quarterly loss.

ThyssenKrupp's stock has lost more than half of its value over the past 12 months, while Salzgitter shares have declined by about a third.

ThyssenKrupp trades at 9.8 times estimated 12-month forward earnings, at a premium to ArcelorMittal's multiple of 6.6 but at a discount to Salzgitter's 10.7.

Shanghai rebar fell to its lowest level in more than five months on Tuesday, stretching its losses into a third straight session, amid thin Chinese demand that could prompt producers in the world's biggest steel market to curb output.  

Weakness across riskier assets, from oil to equities, also pressured rebar futures, which in turn has cut appetite for key raw material iron ore, dragging down spot prices to their lowest in about 2-1/2 months.

"Steel mills are facing a hard time with the extended fall in prices," said a Shanghai-based iron ore trader.  

"Our sales are okay, but not at high prices, and steel mills are keeping inventories low and not planning to buy one tonne if they can."  

The most briskly traded rebar contract for October delivery on the Shanghai Futures Exchange touched a session low of 4,055 yuan ($640) a tonne, last seen on Nov. 30, before closing at 4,090 yuan, down 1.1 percent.

"There's still too much steel for the current market to absorb. Given this sustained fall in prices, we should expect steel production to be cut down by the end of this month," another trader in Shanghai said. 

China, which makes around half of the world's steel, produced at a record daily pace of around 2 million tonnes in the past two months, based on industry estimates, in anticipation of a pickup in seasonal demand that turned out to be slow.  

Falling in tandem with steel prices, benchmark iron ore with 62-percent iron content .IO62-CNI=SI dropped 0.7 percent on Monday to $136.70 a tonne, the lowest since Feb. 22, based on data from the Steel Index. 

Spot deals this week showed a continued fall in prices, with miner Rio Tinto  selling 75,000 tonnes of 65 percent grade iron ore concentrate at $147 a tonne, including freight, down from a prior sale price of $150, the second Shanghai trader said.

Top iron ore supplier Vale sold 80,000 tonnes of 64 percent grade iron ore fines at $138.32 a tonne, versus $139.05 for a similar grade previously, he said.

Vale is selling another cargo via a spot tender on Tuesday, 167,00 tonnes of 61-percent grade fines, traders said.

At China's iron ore trading platform, which debuted on May 8, Vale sold a 164,619-tonne cargo of 63.5-grade fines at $135 a tonne on Monday, down more than 3 percent from a benchmark price, according to the website of the China Beijing International Mining Exchange which runs the platform.

A second cargo, of 110,000 tonnes of Australian 62-grade fines, was sold at $139 a tonne, up $1 from a benchmark price, the exchange said.   

"We don't see much bids for cargoes. I think the downtrend in both steel and iron ore prices will continue until the end of this month unless steel mills cut production," said the second trader.   

A steep decline in prices for iron ore forward swaps reflects investor expectations spot rates could fall further, with prices in backwardation or those for nearby delivery higher than for further forward months.

JSW Steel, India's third-biggest steelmaker, reported a 10 percent fall in quarterly net profit, beating expectations, and said it expected to operate its main plant at 80 percent capacity in 2012/13 as iron ore supplies take time to stabilise.

Production at JSW Steel's 10 million tonnes per year Vijayanagar plant in Karnataka has been affected since August after India's Supreme Court put an interim ban on mining in the southern state, citing illegalities in some mines.

While ore supplies have been partially restored through auctions, India's top court last week ordered the federal police agency to probe JSW Steel's alleged involvement in illegal iron ore mining in the state.

"In some ways, we are a victim of circumstances, since we do not have mines of our own and are forced to buy all our ore requirement," chairman Sajjan Jindal told reporters. "It will be a few more months before the iron ore issues are fully resolved".

JSW Steel, in which Japanese steelmaker JFE Holdings owns 15 percent stake, reported a net profit of 7.52 billion rupees ($140 million) for the January-March period - its fourth quarter - and net sales up 35 percent to 95.1 billion.

Subsidiary JSW Ispat, in which JSW Steel acquired a controlling stake in 2010, last week posted a quarterly loss of 1.4 billion rupees.

"The realisations are less than expected, and the fall in input costs should have been more. Their performance in coming quarters will mainly depend on the iron ore supplies," said Kamlesh Bagmar, analyst at Mumbai brokerage Prabhudas Lilladher.

JSW expected to sell 9 million tonnes of steel in its 2012/13 year, compared with 7.8 million tonnes in 2011/12. Production was expected to rise to 8.5 million tonnes this fiscal year compared, from 7.5 million tonnes.

The company will not raise capacity at the Vijaynagar plant beyond the 12 million tonnes currently under way, Jindal said. JSW expects to spend 60 billion rupees expanding capacity in its current year.

OUTLOOK POSITIVE

JSW sees margins improving in coming quarters as iron ore and coking coal prices were expected to ease, even as steel demand remains robust in Asia's third-largest economy.

The company said sales volume in its fourth quarter rose a third to 2.31 million tonnes, while crude steel production rose 26 percent.

"We expect steel demand (growth) in India will be around 7.5 percent, tracking the expected GDP growth of 7.6 percent in 2012/13," the company said.

Steel demand in India has been growing at near double-digits over the past few years, pushing local firms to boost capacity and attracting global steelmakers including ArcelorMittal and POSCO to set up base in the country.

Shares in JSW Steel, valued at $2.6 billion, closed down 1.2 percent in a Mumbai market that fell 0.5 percent. The stock has risen 23 percent in 2012, compared to a 5 percent rise in the benchmark stock index.

Nippon Steel Corp expects a supply glut of steel products in Asia to continue for a while, with price rises unlikely for now, President Shoji Muneoka said at a news conference on Monday.

Muneoka called the firm's annual cost reduction target of 150 billion yen ($1.88 billion) following a planned merger with Sumitomo Metal Industries Ltd on Oct. 1 "conservative".

China steel futures fell to more than four-month lows on Monday, pressured by slow demand in the world's biggest consumer which has curbed appetite for raw material iron ore and pulled down prices to levels last seen in February.  

The weakness, mirrored in other risky assets from copper to oil, came despite China's weekend move to cut banks' reserves to lift lending and boost a slowing economy. Analysts say increasing market liquidity may not solve China's woes. 

"It's not about liquidity, it's about real demand. So the liquidity improvement will not help because there's simply no demand out there," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.   

Beijing's move, analysts say, confirm the weak outlook for the world's No. 2 economy, and along with a nagging euro zone crisis was enough to push funds to cut risk holdings.

The most active rebar contract for October delivery on the Shanghai Futures Exchange closed down 0.4 percent at 4,135 yuan ($660) a tonne, just off the session trough of 4,133 yuan, its lowest since Jan. 5.

Liu said rebar prices need to drop further, possibly below 4,000 yuan, to curb supply which grew at a record daily pace of around 2 million tonnes in the past two months, based on industry estimates.   

China, which produces around half of the world's steel, has been driving global output, but overcapacity in China and elsewhere could limit price movements and producer margins.

"In our opinion, second quarter steel demand seems far from aggressive, and in most markets there seems to be ample steel availability at the present time," Macquarie Commodities Research said in a note.

"When coupled with the overcapacity that continues to plague the sector, the coming months and even years are set to see relatively tepid price action and thin steelmaker margins."

The weakness in the steel market continued to weigh on iron ore prices, with the benchmark 62-percent grade ore.IO62-CNI=SI falling more than 1 percent to $137.60 a tonne on Friday, the lowest since Feb. 22, based on data from Steel Index. 

"We should see iron ore prices going lower further this week, especially if Vale continues to release cargo," a Singapore-based trader said.

Top miner VALE has been actively selling cargoes in the spot market in recent weeks, prices for which have mostly fallen in line with the overall market weakness.

According to China Iron and Steel Association (CISA), the daily crude steel production of its members in late April stood at 1.6691 million tonnes, and that for the whole nation is expected to be 2.035 million tonnes. China daily crude steel output is forecast to peak 2.2058 million tonnes in April breaking a new high.

Note: IronOreTeam mobile version is available now! For more details, please visit http://mobile.ironoreteam.com/

IronOreTeam will not update information service until May 02, 2012, due to national May Day holidays.

IronOreTeam will not update information service until April 05, 2012, due to national holiday of Pure Brightness Festival.

IronOreTeam will not update information service until Jan 04, 2012, due to national holiday on from Jan 01 to Jan 03, 2012.

IronOreTeam will not update information service until Oct 8, 2011, due to national holiday on from Oct 1 to Oct 7, 2011.

IronOreTeam will not update information service until Sep 13, 2011, due to national holiday on Sep 12, 2011.

IronOreTeam will not update information service until Jun 07, 2011, due to national holiday on Jun 06, 2011.

IronOreTeam will not update information service until May 03, 2011, due to national May Day holidays. 

IronOreTeam will not update information service until April 06, 2011, due to national holiday of Pure Brightness Festival.

London copper peeked above four-month lows on Friday on short-covering and signs that

Greeks are warming to pro-austerity parties, allaying some fears the country could leave the euro zone.

Still, worries about Spain's finances and reports of Chinese copper inflows onto the London Metal Exchange (LME) will likely cap gains in the session.

Three-month LME copper inched up $1 to $7,650 a tonne by 0712 GMT, after closing almost flat in the previous session. It is on track to post a weekly drop of 4.6 percent, its third consecutive week of losses. 

The most active August copper contract on the Shanghai Futures Exchange (ShFE) fell 0.4 percent to close at 55,520 yuan ($8,800) a tonne, a partial rebound after a steeper fall at the open.     

The Shanghai contract rose 1.9 percent on Thursday, much more than its London counterpart, after diving on Wednesday to its cheapest since Dec. 20. Compared with last week, it fell 3.4 percent, its third consecutive weekly loss.   

"LME copper started rising after bouts of short-covering on the ShFE this morning ... I think this triggered the metal's upward momentum and helped lift London prices," said a Shanghai-based trader with an international firm.

"London copper is also tracking the rise of base metals like aluminium, zinc and lead, which started floating higher since yesterday. Those metals are trading closer to their marginal production cost than copper, so they have rebounded faster," he added.    

Copper prices may also have been weighed down this week by a hefty inflow into LME warehouses from China. Traders said China's smelters and merchants may have added around 110,000 tonnes to LME warehouses in South Korea.    

The exports came just two weeks after the trading unit of Jiangxi Copper Co Ltd , China's top producer, said a group of copper smelters as well as trading firms would export refined copper cathodes to LME to help ease tight global supplies and trim near-record stockpiles at home.   

Regarding the euro zone, a poll showing Greek voters returning to pro-bailout parties helped improve sentiment ahead of a snap election in Greece next month, which many still fear could empower anti-austerity leftists and prompt Greece to quit the euro.   

Separately, a German Bundesbank board member told Reuters that euro zone banks are in better shape than before the financial crisis, and that those in Germany are equipped to cope with Greece taking a turn for the worse.     

Any price gains in the session will be fragile in light of China's soft downstream demand and high stockpiles, as well as the debt issues clouding the euro zone, analysts said.

"In the longer term, copper is weighed down by still-lacklustre demand and still-high stockpiles in China. Many smelters are losing money, and while ShFE inventories have pared over the past few weeks, stocks are still higher than they have been over the past few years," said Minmetals Futures analyst Zhang Ao. CU-STX-SGH   

"But the next turning point for copper prices, either a decisive rise or fall, will really be determined by macroeconomic events, especially from the euro zone," he added.     

Even as investors were able to take a brief respite from fears of a Greek default, bad news in Spain - the euro zone's fourth-largest economy - illustrated Europe's dire economic situation.        

Spain's borrowing costs spiked at a bond auction on Thursday, while shares in its troubled lender Bankia dived as 16 other banks suffered a credit ratings cut. Official data also confirmed that the country was back in recession.

Contributing to investor caution was the high number of new claims for U.S. jobless benefits last week, which suggested sluggish growth in hiring. Factory activity in the mid-Atlantic region also contracted in May, worrisome signs for a still-fragile economic recovery.

London copper rose more than 1 percent on Thursday, snapping a four-session sell-off that sank prices to four-month lows, but worries about the future of Greece as its political crisis deepens kept sentiment in check.

Copper prices were on course for their biggest daily rise in three weeks, but gains were capped by the contagion potential of a euro zone without Greece, a slowdown in top copper consumer China and the fragile state of the U.S. economy.   

Investors are worried about the impact of a possible decision by Greece to leave the euro zone on Spain, Italy and other nations within the bloc with big debt loads.

The euro edged higher against the dollar after plunging to a four-month low the day before, while the dollar index eased from a four-month high against a basket of currencies, giving some relief to prices of commodities priced in the greenback.   

"At this point, the nervous tone still evident in the markets is telling us that the Europeans need to embark on a series of stabilization initiatives, including ones that could buffet the systems from the shock of a likely Greek exit from the euro," INTL FCStone analyst Edward Meir said in a note.   

"Simply waiting for the results of the June 17th Greek elections may be too late and risks widening the contagion into Spain and Italy," Meir said. 

Three-month copper on the London Metal Exchange  gained 1.2 percent to $7,746 a tonne by 0703 GMT, on course for its biggest daily rise in three weeks.

The most-traded August copper contract on the Shanghai Futures Exchange closed up 1.9 percent to 55,730 yuan a tonne, off a 2012 low of 54,660 yuan hit in the prior session.

Spot prices in Shanghai were quoted at a premium of about 100 yuan over front-month futures contracts, traders said.

Premiums in spot prices usually suggest tightness in physical market and bustling demand, but this time were not seen as encouraging.

"The premium in spot prices doesn't point to notable improvement in demand," said Chen Dixi, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.  

"Instead, it is caused by the reluctance to sell after recent price declines and a significant slowdown in import flows." 

In London, spot-to-three-month spread MCU0-3 widened to a backwardation of $45 a tonne on Wednesday from $33 in the previous session. 

The latest U.S. data suggested a moderate pickup in economic growth early in the second quarter, while the minutes from the Federal Reserve's recent policy-setting meeting showed that the Fed kept the door open for more easing if economic recovery stumbles.

London copper fell to a 4-month low on Wednesday, extending losses to a fourth consecutive session, as investors continued to shy away from risky assets with the Greek political malaise threatening to plunge Europe into a deeper financial mess.        

Shanghai copper fell to its lowest since the end of December, under pressure from both the political crisis in Athens and concerns of a further slowdown in the Chinese economy.      

The dollar hit a four-month high against a basket of currencies at the expense of a weaker euro, weighing on dollar-priced commodities as it makes them more expensive for buyers holding other currencies.         

There is more room on the downside for copper in the next few weeks, while we wait for China data to be released in mid-June and any consequential easing acts from the central bank," said Judy Zhu, an analyst at Standard Chartered in Shanghai.       

Zhu said June could be a turning point for base metals if more easing measures are deployed to boost growth. 

But the world's biggest miner BHP Billiton said it expects commodity markets to cool further and that investors have lost confidence in the longer-term health of the global economy.          

Three-month copper on the London Metal Exchange slid 1.6 percent to $7,633.5, before recovering slightly to $7,639.25 per tonne by 0703 GMT. 

The most-traded August copper contract on the Shanghai Futures Exchange fell to as low as 54,660 yuan per tonne, before closing the day down 2.2 percent to 54,690 yuan.   

The factors supporting commodities and equities in previous months, namely prospects of more U.S. monetary easing and receding worries about the euro zone debt crisis, have largely vanished, with a flare-up in the Greek political crisis and China growth concerns taking the centre stage in recent weeks.       

"With bullish factors gone and bearish factors prominent, it would be a miracle if prices don't fall," a trader said.   

The tightness in global physical copper market appeared to have eased, with the spot-to-three-month premium on London copper MCU0-3 dropping to a one-month low of $33 on Tuesday, off 70 percent from last week's peak of $111.   

Meanwhile, Shanghai's front-month contract had a premium of 660 yuan over the most-active August contract, though copper demand has been disappointing in recent months.        

"People aren't willing to sell on the physical market when prices drop fast, so we are seeing some premium in spot prices," said Zhou Jie, an analyst at Shanghai CIFCO Futures.    

"So long as we don't see a shift in policy, the sluggish trend in prices is not going to change."    

In other news, NYSE Euronext is out of the race to buy the London Metal Exchange, a spokesman said on Tuesday, after its reported 800 million pound (US$1.28 billion) bid was deemed too low.

London copper steadied on Tuesday after falling to a four-month low earlier as it benefitted from a rebound in the euro, although continuing political uncertainty in Greece kept the bearish mood intact.     

The euro bounced back to $1.2856, having hit a four-month low of $1.2812 earlier after a political stalemate in Greece stoked fears the country may renege on bailout pledges made to international creditors and exit the currency bloc.    

Three-month copper on the London Metal Exchange was little changed at $7,840 a tonne by 0706 GMT. It touched a low of $7,763.50 earlier in the session, its weakest since Jan. 12.  

Copper struggled to head higher, even after losing more than 3 percent between Friday and Monday, with the political distress in Greece cutting risk appetite across equities and commodities.    

"There will be continued uncertainty until there's a resolution in Greece, but so much of this hinges upon the political cycle which is very hard to pick from a market perspective," said Matt Fusarelli, analyst at Australia-based consultancy AME Group.                    

Copper hit $8,765 in February, its highest level so far this year and a more than 15 percent increase from 2011, after Greece clinched a bailout deal to avoid a debt default.  

Now that gain has thinned to just around 3 percent with Greece struggling to form a coalition government that is key to its bailout-funded recovery.        

The most-traded August copper contract on the Shanghai Futures Exchange dropped 0.6 percent to close at 55,950 yuan ($8,900) a tonne.     

A euro zone minus Athens could end up being the catalyst for a market rebound, INTL FCStone analyst Edward Meir said.    

"If handled right, Greece leaving the euro could be the best thing that could happen to the markets, as it will finally allow a mending process to begin whereby Greece can finally marshal the competitiveness of a weaker drachma to climb out of its economic straightjacket," Meir said in a note.       

CHINA SLOWDOWN        

A slowdown in China is also weighing on investor sentiment, with Beijing's weekend move to cut banks' reserves to spur lending seen as an affirmation that the world's No. 2 economy and top copper consumer is weakening further.       

But AME's Fusarelli believes China, which consumes around 40 percent of the world's copper, will remain a key support factor for the market.   

"We are quite positive on the copper market because so much of it is going into electrification projects in China and these are going to be sources of demand which transcend any pocket of weakness," he said.     

"The world has to get around the idea that China will not continue to grow at double-digit rates every single year. These growth rates are going to slow and that means copper and raw material demand will slow in percentage terms."       

China's copper imports fell nearly 19 percent to an eight-month low in April, while its output of refined copper for the same month fell for the first time since January.

Fundamentally, a sustained premium in LME cash copper over three-month material MCU0-3 still points to tightness in immediate supply, which should be supportive of prices. But the backwardation had eased to $60 a tonne on Monday from this year's high of $149, the steepest since August 2008.

London copper fell to near one-month lows on Monday, giving up early gains as traders came round to the view that China's weekend cut in reserve requirements suggests a deepening slowdown in the world's top copper consumer.   

The failure of talks to form a new government in debt-laden Greece also prompted investors to sell off riskier assets from oil to equities.    

China's cut to its reserve requirement ratio - the amount of cash banks are required to hold as reserves - to boost lending initially boosted copper at the open but sentiment later turned bearish.   

The move came after data last week showed the world's No. 2 economy slowed further in April which followed the weakest first-quarter growth in nearly three years.  

"It's not about liquidity, it's about real demand. So the liquidity improvement will not help because there's simply no demand out there," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.

There was already evidence of weakening demand in April when China's copper imports fell nearly 19 percent to an eight-month low, while its output of refined copper fell for the first time since January.    

"In this environment, the RRR cut is bearish, not bullish," said a Singapore trader.      

Three-month copper on the London Metal Exchange fell 1.2 percent to $7,920 a tonne by 0702 GMT, after falling as low as $7,915.50, its weakest since April 16. It hit a high of $8,085.50 earlier.   

The most-traded August copper contract on the Shanghai Futures Exchange slid nearly 2 percent to close at 56,260 yuan ($8,900) per tonne. 

The July COMEX contract dropped 1.3 percent to $3.5990 per lb.   

Thomas Lam, chief economist at DMG & Partners Securities, believes the troubled euro zone, where Greece's political fate is in doubt and a German vote pointed to growing opposition to austerity steps, remains the main risk factor for markets.

"The key here for the euro zone is really credibility...As long as this credibility remains shaky there is no reason for markets to move in a more predictable fashion."  

China will lower banks' reserve requirement ratio (RRR) by 0.5 percentage points starting May 18, the country's central bank announced Saturday.

The cut, the second of its kind this year, will drop the RRR for the country's large financial institutions to 20 percent and the medium- and small-sized financial institutions to 16.5 percent, according to the People's Bank of China.

Analysts say the central bank's move is to further release liquidity against the backdrop of current slowdown in economic growth.

The cut will release an estimated 400 billion yuan (63.49 billion U.S. dollars) in capital into the market.

China had previously lowered the RRR by 0.5 percentage points on Feb. 24.

"From the April economic data released recently, we can see that China's foreign trade, investment, tax revenue and credit have all showing signs of slowdown in growth," Lian Ping, chief economist of Bank of Communications, told Xinhua.

"The central bank lowers the RRR now with a view of releasing additional liquidity and strengthen the market vitality," he said.

The central bank in December cut the RRR by 0.5 percentage points for the first time since December 2008, after hiking the RRR six times last year in an effort to check inflation.

China’s April copper imports fell, a beginning and Commerzbank looks for more declines. Commerzbank AG is the second-largest bank in Germany, after Deutsche Bank.

According to the German bank, a Chinese customs report shows that China imported 375,258 metric tons of copper last month, 19% less than March and the second monthly decrease in a row. Imports were down 26% from December’s record high.

“The renewed reduction in copper imports is due in part to the virtual lack for several months now of any attractive arbitrage opportunities between the exchanges in London and Shanghai,” Commerzbank added.

The bank continued that, “What is more, exchange-registered copper inventories in China were topped up by 170,000 tons between early December and mid-March China had long been importing more than it needed and local production has also remained at a high level to date.”

“We expect copper imports to continue to decline in the coming months, since there is still no scope for attractive arbitrage and domestic stocks would first need to be reduced.” This could leave copper under pressure in the short term, Commerzbank concluded.

China's annual consumer inflation moderated in April despite strong food price rises, data on Friday showed, potentially giving Beijing more scope to loosen policy to help the economy rebound from a first-quarter slowdown in growth.

The data comes ahead of the monthly industrial production report due at 0530 GMT, which will be closely watched after disappointing trade numbers on Thursday heightened jitters about a slowdown in the global economy.

"This confirms that inflation is trending down and that the policy focus will remain on promoting growth," Zhang Zhiwei, China economist at Nomura in Hong Kong.

"The weak export data yesterday put more pressure on the government. This really doesn't change the market outlook on inflation that much, but probably policy loosening will become more likely going forward."

The April consumer price index (CPI) rose 3.4 percent year-on-year, down from the 3.6 percent pace logged in March.

Food inflation - which is of most concern for China's people and policymakers - also showed signs of moderating, although it is still comfortably outpacing other prices.

April food inflation came in at 7.0 percent, below the 7.6 percent forecast and down from 7.5 percent in March, as falling pork and fruit prices offset an increase in vegetable prices.

China's inflation has fallen steadily from a three-year peak of 6.5 percent in July 2011 in response to a series of policy tightening steps and weakening economic activity.

Retreating inflation has led investors to speculate that China may cut further the amount of cash it requires banks to hold as reserves to encourage them to lend more to cash-strapped firms.

China has cut the required reserve ratio by 100 basis points from a record high of 21.5 percent in two steps, the last a 50 bp cut in February.

DOWNTURN RISK

Trade data on Thursday highlighted the risks to China's factory-focused economy of a fresh downturn in demand, with annual export growth of just 4.9 percent in April, below a forecast of 8.5 percent, while headline import growth stalled.

There is likely to be better news for China bulls later on Friday, with more data expected to show an uptick in April industrial production compared with March as factories move out of a trough in the cycle.

Annual industrial production growth is forecast to hit 12 percent, a Reuters poll showed, up from 11.9 percent in March.

"I think growth should accelerate and if it does Thursday's trade data will become less important to the market," said Darius Kowalcyzk, economist at Credit Agricole-CIB in Shanghai.

But slightly stronger production by China's manufacturers belies continued softness in domestic demand, exacerbated by the impact of financial turmoil in Europe, a major export market.

Steel mills were producing flat-out in April, as they competed to maintain market share despite falling profits.

High domestic stockpiles of metals and iron ore made it unprofitable to import more, helping explain a mere 0.3 percent rise in China's imports in April, far short of the 11 percent growth that had been forecast.

Fixed asset investment data for April is also due later, with analysts polled by Reuters expecting a steady pace of growth.

Other than pockets of government spending, overall investment is relatively soft, weighing on demand for steel for construction as well as household appliance purchases, said steel analyst Zhou Xizheng of CITIC Securities in Beijing.

"It's mostly because consumer confidence is weak," he said. "Investment is weak because no-one wants to take on more debt."

April retail sales growth is expected to be unchanged from March, at 15.2 percent.

China's export and import growth slowed in April, raising fears about a sharp slowdown in its economy and triggering calls for monetary policy easing.

Exports rose by 4.9% in April from a year earlier, down from the 8.9% annual growth seen in the previous month, a sign that global demand may be slowing.

Meanwhile, imports rose just 0.3% on the year, down from 5.3% in March, indicating a fall in domestic demand.

China has been trying to boost domestic consumption to rebalance its growth.

"It is quite a revealing number. What we are seeing in China at the moment is an economy that is very much exposed to the global volatility," Alistair Thornton of IHS Global Insight in Beijing said.

"It is clear that the situation in Europe is dragging on China's export performance, and in turn on its overall growth."

Policy easing?

China's robust economic growth in the past few years was accompanied by a sharp rise in inflation and a surge in property prices.

As a result, Beijing introduced various measures, including curbs on lending, to try to rein in consumer and property price growth.

While it has since eased some of those policies, analysts said the effects of the tightening were still being felt.

"China's economy is still to bounce back from the cumulative effect of the monetary tightening last year which is impacting domestic demand," said Mr Thornton of IHS Global Insight.

China's central bank has reduced the amount of money banks must hold in reserve twice in the past few months in a bid to increase lending. The hope is that more easily available credit will spur investment and boost demand.

However, some analysts said that the government needed to ease its policies even further.

"If the government does not relax policies further, all factors that dragged growth down in the first three months will still remain in the second quarter," said Jianguang Shen of Mizuho Securities Asia.

"China needs not only to loosen monetary policies, it also needs to relax curbs on local government financing vehicles and the property sector."

'Plenty of weakness'

Over the past few years China has relied heavily on the success of its manufacturing sector and exports to boost its economic growth.

However, economic problems in the key US and eurozone markets have dented demand and hurt growth.

While there had been hopes of an economic recovery in those markets, recent data and developments have suggested that the recovery may take much longer.

In the eurozone, the region's debt crisis fears have re-emerged after voters in France and Greece backed politicians who are opposed to state spending cuts.

In the US, jobs growth, which is seen as key to a recovery in the world's biggest economy, slowed in April.

China's policymakers have also found it tough to boost domestic demand enough to offset lower growth in exports.

Given these issues, analysts say the recovery in China's trade is likely to be a very slow one.  

"We do expect things to improve. However, it is not going to be a sharp V-shaped recovery but a slow and volatile one amid plenty of weakness in both the domestic and global economy," said IHS Global Insight's Mr Thornton.

An important gauge of China’s industrial sector strengthened slightly in April, suggesting that the country is on track for a “soft landing”.

The official purchasing managers’ index for manufacturing rose to 53.3 last month, its highest in more than a year, from 53.1 in March. It was also China’s fifth successive above the 50 level, which signals an expansion of activity.

The steadily higher PMI readings support the view of many economists that Chinese economic growth probably bottomed in the first quarter, when gross domestic product increased 8.1 per cent year on year.

Although the government is officially targeting just 7.5 per cent growth this year, China is widely expected to surpass that. To cushion slowing exports, the central bank has been gradually easing monetary policy. Fiscal spending has also increased on large-scale projects such as the construction of affordable housing.

“China has confidence that it will sustain steady and robust economic growth,” Wen Jiabao, the premier, said last week during a visit to Europe.

The April PMI reading was a touch below market expectations of about 53.5, but most of the sub-indices pointed in a positive direction.

Export orders edged up to 52.2 from 51.9 in March, indicating that global demand was still holding up relatively well despite Europe’s troubles. Meanwhile, factory output rose to a hefty 57.2 in April from 55.2 as manufacturers stepped up their restocking.

Ting Lu, an economist with Bank of America Merrill Lynch who has forecast that China will grow 8.6 per cent this year, said the upturn in the PMI confirmed that outlook. But he said the signs of resilient growth should also cast doubt on expectations for more aggressive moves by the government to support the economy, since such measures are simply not necessary.

“Beijing will continue its pro-growth policies, but the markets should also be wary of overly optimistic forecasts,” he said in a note to clients.

Alistair Thornton and Ren Xianfang, economists with IHS Global Insight, also cautioned that China’s soft landing will be followed by an equally soft recovery. With labour supply increasingly tight, the government has less room to stimulate growth than in the past without causing inflation.

“There are signs of life in the economy and things should improve, all underpinned by an easing credit climate. But the recovery will be slower, more volatile and less assured than perhaps markets were hoping for,” they said.