Economy

Domestic iron ore, steel trends hit markets

By Zhang Qi (China Daily)
Updated: 2010-08-04 06:55

Beijing - Rising domestic iron ore production and slowing steel demand have hit some foreign miners and affected the global market, industry leaders said on Tuesday.

China's iron ore imports dropped for the third straight month to 47.2 million tons in June, while spot prices have dropped to about $122 per ton after peaking at $185 per ton in April.

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The country's iron ore imports rose 4 percent year-on-year in the first half of this year, figures from the China Iron & Steel Association (CISA) showed. But domestic ore output increased by 28 percent year-on-year to 485 million tons in the same period, with output rising 37.6 percent in the second quarter from the first quarter.

"Rising domestic ore production is the main factor that drove down imports, largely impacting supply and demand on the global market," CISA vice-chairman Luo Bingsheng said.

The figures form part of the bad news for international mining companies in Australia and Brazil that provide more than half of the ores to China.

Iron ore imports from Australia, Brazil and India accounted for 62.3 percent of the country's total ore consumption last year.

Brazilian company Vale already predicted in June that the share of imported ores in China would drop this year.

About 40 percent of Chinese steel mills have to make cutbacks or put plants on maintenance, blaming increasing costs of imported ores and declining steel prices. Oversupply in the industry will continue to lower production, further driving down ore imports in the third quarter, Luo said.

The CISA will also reduce the number of licensed iron ore importers to regulate the imported ore market.

"We will announce new rules for the industry soon, which include higher standards on the environment, energy consumption and capital requirement," Luo said.

The CISA said earlier it wanted to reduce the number of ore importers, which were blamed for "disturbing" the market and "driving up" prices. Currently, 112 companies are authorized to import iron ores.

China has long wanted to reduce dependence on ore imports and boost domestic supplies.

"The figures indicated that expanding domestic ore production effectively helped to reduce dependence on costly ore imports," said Deng Qilin, chairman of Wuhan Iron & Steel Group, the country's third-largest steelmaker.

China has domestic ore reserves of 62.4 billion tons, but most mines have low iron content, adding to the cost of mining. Rising imported ore prices stimulated Chinese miners to source from the local markets.

Domestic steel mills also started cutting product prices in June, signaling a market adjustment due to weak downstream demand.

Most of the big steel mills like Baosteel and Wuhan Iron & Steel cut August prices by 5 percent to about 300 yuan per ton from July.

Average steel prices in China peaked in April after starting to rise in August last year, but steel prices began to fall after the government released its macroeconomic policies to control property prices.

Steel production in China reached a four-month low in June due to weak demand from real estate companies and the automobile industry. The nation produced 53.77 million tons of crude steel in June, 4 percent lower than the 56.1 million tons in May.

"Higher costs and falling product prices will see many steel mills suffering losses in July and force them to cut production," said Zhang Xiaogang, chairman of Anshan Iron & Steel Group, China's fourth-largest steel company.