China may reduce iron ore imports from India

China may reduce iron ore imports from India

Dalian (China): China’s iron ore imports, including that from India, are expected to be sluggish this year due to rising domestic supply and decline in the growth of Chinese steel output capacity, industry insiders say.

The country’s import of iron ore rose to 187.9 million tonnes in the first six months this year, up 16.46% year-on-year. Australia continues to be the biggest exporter to China, accounting for 37.95% of the country’s total imports, followed by India, Brazil and South Africa.

The output of large and medium-sized mines in China rose 29.28% to 321.28 million tonnes in the first half while the output of small mines was around 50 million tonnes.

“The large scale of mining by domestic steel companies is expected to curb further rises in ore prices," China Daily quoted Chen Xianwen, an official from the China Iron & Steel Association (CISA), as saying at the International Iron Ore Market Seminar in Shanghai on 5 September.

“The domestic demand for iron ore is expected to increase around 70 million tonnes this year. Apart from the domestic output growth, of around 40 to 45 million tonnes, we need only 30 million tonnes more from overseas, which rose only 9% from last year," said Zou Jian, chairman of the China Metallurgical Mining Enterprise Association, at the seminar.

China is the world’s largest steel producer and biggest importer of iron ore. Iron ore is India’s main item in the export basket.

“Large drops are expected in steel prices in 2009 because of the projected slowdown of world economic growth," Chen said.

China’s crude steel output rose only 14.64% in June, dropping 11.44 percentage points from January. “The output is expected to increase slower, which may lead to a shrinkage in iron ore demand," an official said.

However, mainland steelmakers continue to be under price pressure because of the soaring transportation cost of iron ore.

“Transportation cost has become a key factor," industry sources said.

The average CIF (cost, insurance and freight) prices rose 21.54% to 74.64 US dollars per tonne in the first half of this year, much more than the rising pace of FOB (freight on board) prices.

“Besides some factors like monopoly of the iron ore market by the three largest producers, the rising ore price is just a reflection of the market need," chairman of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, Chen Haoran, said.

Ore supply is expected to increase massively worldwide. Brazil’s CVRD, the world’s largest iron ore producer, is expected to produce 300 million tonnes of iron ore this year. RioTinto and BHP Billiton, two big exporters to China, are also expected to expand their capacity to 300 million tonnes in the years to come, according to the CISA’s estimates.