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Print[Ferro-Alloys.com]Singapore spot iron ore prices are likely to retreat this week with Chinese mills holding off on restocking amid concerns over a cash squeeze in the world's top market which is already reeling from slower steel demand.
Shanghai steel futures fell on Monday, tracking losses in Chinese equities following official news reports over the weekend that suggested Beijing will not change its tightening policy.
China's central bank said the overall liquidity in the financial system is at a reasonable level after interest rates for short-term funds spiked to extraordinary levels last week as big commercial banks held back on lending in the interbank market.
A liquidity squeeze may promptsteel mills to rush to sell their inventory of steel products, resulting in lower prices that will hurt their profitability or widen their losses, said an iron ore trader in Hong Kong.
"It will make mills very reluctant to buy more iron ore and we could see steel production cuts in July. These are tough times," the trader said.
The most traded rebar contract for October delivery on the Shanghai Futures Exchange dropped 0.8 percent to 3,465 yuan ($560) a tonne by the midday break
That could cut appetite for raw material iron ore, stalling a recent rally that lifted benchmark prices to near one-month highs last week.
Iron ore with 62-percent iron content the industry benchmark, fell 1.7 percent to $118.60 a tonne on Friday, from Thursday's $120.60, its highest level since May 27, according to data provider Steel Index.
Bids were scarce on Monday on trading platforms GlobalOre and theChina Beijing International Mining Exchange, traders said, despite plenty of cargoes on offer, traders said.
The recent rally in iron ore prices looks fragile, said Macquarie Securities.
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