Shanghai: China’s iron ore imports may fail to increase next year for the first time since at least 1999 because of slowing demand from steel mills, an industry group said.
Imports may remain at 400 million tonnes (mt) next year, unchanged from 2008 levels, Zou Jian, chairman of the China Metallurgical Mining Enterprise Association, said in an interview on Tuesday in Beijing. The demand slump will show up in import figures in the next two months, he said.
China this week announced a 4 trillion yuan (Rs28.5 trillion) stimulus plan to revive growth in the world’s fourth largest economy, investing in housing, railways, roads and airports. Contract iron ore prices may drop next year, the first in seven, hurting profits at Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd, analysts said.
Losing money: Zou Jian, chairman of the China Metallurgical Mining Enterprise Association. Munshi Ahmed / Bloomberg
“Iron ore consumption will keep slowing to at least the first quarter, or even longer,” said Helen Lau, a Shanghai-based analyst from Daiwa Securities Group Inc. She said the stimulus plan may boost China’s iron ore imports to between 400mt and 450mt.
Brazil’s Vale and Rio Tinto, the world’s two largest iron ore suppliers, have announced production cuts because of reduced demand from China. Imports dropped 22% in October to 30.6mt from the previous month, according to China’s Customs General Administration. Domestic iron ore mines that started in the past five years are losing money, and some have closed, Zou said. Although this week’s stimulus plan is “positive”, it will be difficult to gauge how the market will be bolstered, he said.
Cash prices of iron ore imported by China have tumbled 62% since 9 May, according to Beijing Antaike Information Development, a research firm. Contract iron ore prices charged by Vale, Rio and BHP may fall 40% next year, UBS AG said. Iron ore contract prices are negotiated on an annual basis. That may change pending discussions between the producers and steel makers, Zou said. Price talks may be delayed because of the financial turmoil, Nippon Steel Corp., the world’s second largest mill, said on 7 November.
China will produce between 380mt and 390mt of iron ore concentrate this year, up from 340mt a year ago, Zou said. Chinese ore tends to be of lower quality than those imported from Brazil and Australia, the world’s two largest exporters of the raw material.