will be up more tonight, page-45

iron ore pricing 2006 - looking good Indian bombshell blows away fears over China's five-year plan
WORLD ECONOMIC FORUM, DAVOS
Robert Gottliebsen
February 03, 2006

WHEN the Chinese at the World Economic Forum in Davos announced the outline of their coming five-year plan, those with iron ore interests were a little nervous - particularly as Chinese banks had indicated they would be taking a tough line on steel producers, given the big steel surpluses.

The five-year plan will emphasise:

Domestic housing.

Health and education.

The environment, including water and air pollution plus recycling. China will be looking to burn coal much more efficiently plus develop hydro and nuclear power.

The development of employment-creating activities in western China.

This is very different from the past five years in which the strategy was to develop extensive industrial capacity on the east coast, based on the export market.

Copper demand should remain strong under the new plan, particularly as China is looking to become a leading user of hybrid cars, which contain twice as much copper as conventional vehicles.

Early in the forum, at least one executive with Australian iron ore interests found himself idly pondering the difference between the amount of steel in washing machines and factories. But then, late in the forum, India dropped a bombshell that made it clear China would continue to depend on Australian iron ore. In recent times China has swung iron ore orders to India in a bid to lessen dependence on Australia and Brazil.

But India announced that it did not see itself as a long-term major export supplier of iron ore. It planned to erect its own iron and steel making facilities to maximise Indian job generation. India plans the same strategy with oil and gas. Exports will still take place but they are not a top long-term priority.

On the natural resources front, most people missed the top-level statement made to me and a few others that Iraq plans to invest $US30 billion ($40billion) - and more may be required - to lift oil production from around 1 million barrels a day to 6 million. At the same time, the decision to recruit members of the old Iraqi army to police and security forces is beginning to lessen terrorism. If that continues and Iraq can form an effective government of national unity the two-year oil plan has a real chance of success.

If it could be undertaken, the proposed Iraq expansion would solve the world's oil problems from 2009 onwards.