Iron ore dips as China's state iron ore buyer reaches deal with Rio Tinto

By Emily Ou Yong

SINGAPORE, Oct 22 (Reuters) - Iron ore futures fell on Thursday after China's state iron ore buyer reached a new supply deal with Rio Tinto, while steel mill margins showed little sign of improvement.

The most-traded January iron ore contract on China's Dalian Commodity Exchange (DCE) fell 1.62% to 669 yuan ($100.23) a metric ton by 0244 GMT.

The benchmark November iron ore on the Singapore Exchange was 1.24% lower at $89.9 a ton.

China's state iron ore buyer, China Mineral Resources Group (CMRG), verbally notified some steel mills of the agreement with Rio Tinto RIO.L, RIO.AX on Wednesday without giving further details, people with knowledge of the matter said.

Reuters reported in early August that CMRG directed some steel mills to halt negotiations with Rio Tinto for shipments from September.

Mill losses at mainstream Tangshan steel producers remained almost unchanged this week, with the average cost of molten pig iron continuing to decline against an ex-factory ordinary square billet price of 2,940 yuan a ton, data from consultancy Mysteel showed.

China's output of raw iron ore fell 23.9% year-on-year to 63.11 million tons in September, data from the National Bureau of Statistics showed.

However, analysts at Everbright Futures said stable overseas mine output, robust shipments and port arrivals, and elevated port inventories pointed to ample supply despite lower domestic output.

Meanwhile, Australia's Fortescue FMG.AX warned its operations could be hit if talks with CMRG did not conclude by year-end.

The world's fourth-largest iron ore miner posted a 6% fall in first-quarter iron ore shipments, citing maintenance including scheduled port outload shutdowns, as its prolonged supply talks with CMRG continued to weigh on the business.

Other steelmaking ingredients on the DCE fell, with coking coal and coke down 1.59% and 1%, respectively.

Steel benchmarks on the Shanghai Futures Exchange were mixed. Rebar fell 0.55% and hot-rolled coil lost 0.83%, while stainless steel rose 1.63%.

($1 = 6.6749 Chinese yuan)