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Chinese iron ore futures dropped 2 percent on Monday as concern over excess supply countered Beijing's aggressive cut in banks' reserve requirements aimed at shoring up a slowing economy. The 100 basis point reduction in banks' reserve requirement ratio exceeded market expectations and showed China's resolve to boost activity in the world's No 2 economy, forecast to grow this year at its weakest pace since 1990.
"We now know clearly that the government will do what it can to increase demand. But iron ore is also saddled by oversupply and those concerns will continue," said Helen Lau, mining analyst at Argonaut Securities in Hong Kong. Iron ore for September delivery on the Dalian Commodity Exchange closed 8 yuan lower at 387 yuan ($62) a tonne, just off the intraday trough of 386 yuan. On the Singapore Exchange, the June iron ore contract dropped 1.1 percent to $49.75 a tonne.
Steel futures also retreated, which Lau said reflects the current weakness in the physical market, adding it may take some time before China's latest move to boost lending perks up demand for the building material.
The most traded contract for rebar, or reinforcing steel bar used in construction, for October delivery on the Shanghai Futures Exchange fell 1.7 percent to end at 2,279 yuan per tonne. "Given a softening Chinese economy in the midst of structural rebalancing towards consumption, we continue to expect further policy stimulus to support growth," Mizuho Bank said in a note.
Spot iron ore has bounced back from a decade low below $50 a tonne, gaining 7.2 percent last week, its biggest weekly gain this year. That followed a recent recovery in futures and as Chinese steel mills replenished inventories after a rapid decline in prices.
Iron ore for immediate delivery to China's Tianjin port climbed 1.4 percent to $50.70 a tonne on Friday, its highest level since the end of March, according to The Steel Index.
The global seaborne iron ore market still has a surplus of between 50 million and 200 million tonnes, according to Morgan Stanley.

Copyright Reuters, 2015

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