Chinas steelmakers may lose ore price fight as demand rise

Beijing, July 26 | Updated: Jul 27 2006, 05:30am hrs
Steelmakers in China, the worlds largest consumer of iron ore, may fail to prevent an increase in prices of the raw material again next year as global demand outpaces production.

Credit Suisse Group and Beijing Antaike Information Co are forecasting prices may rise in 2007 for a third straight record, after gaining 19% to $47 a tonne this year. Out of nine analysts surveyed by Bloomberg, none expected a decline in prices next year.

Soaring demand in China and limited mine expansion has driven spot prices as much as a fifth higher than the benchmark as Baosteel Group Corp, the nations biggest steelmaker, prepares to lead Asian mills in initial contract talks in October with suppliers including Cia. Vale do Rio Doce.

There is a struggle to bring on capacity, and miners have bottlenecks at the ports, rail and mines, said Rob Clifford, of ABN Amro Holding, Melbourne. Next year is going to be at least as tight as this year.

Chinas mills, including Angang Iron & Steel Group and Wuhan Iron & Steel Group, took the lead for the first time in this years annual contract talks after overtaking their Japanese rivals as the single-largest ore buyer in 2003. The negotiations strained relations between Australia, the worlds biggest supplier of the ore, and Chinas government, which capped prices on imports in March to influence talks.

Chinas steel production will keep growing, said Ma Haitian, a steel analyst at Beijing Antaike, a research affiliate of the China Nonferrous Metals Industry Association. China will probably increase crude steel production by 50-60 million tonne annually till 2008. That will translate into additional iron ore demand of 80 million tonne.

Soaring demand in China and limited mine expansion has driven spot prices as much
as a fifth higher than the benchmark
China is likely to increase crude steel production by 50-60 million tonne annually till 2008, says China Nonferrous Metals Industry Association

Chinas crude steel output, which rose 25% to 352 million tonne in 2005, may increase by a further 10% this year, according to China Iron and Steel Association.

Production and exports of steel products both reached records in the first half of this year. China supplies a third of the worlds steel. Chinas mills dispute forecasts of rising steel output and iron ore demand. Ore demand will slow as steel production growth slows, said Zou Jian, chairman of the China Metallurgical and Mining Association.

Bloomberg