ansteel boss cool on industry expansion

Morning all,

An article in this morning's West re Chinese investment in the IO sector.

The West Australian ©




The head of Anshan Iron and Steel has cast new doubt of the future of Chinese offshore investment in iron ore projects, saying it could take five to seven years for profits at steelmakers to recover from the glut in capacity.

In an interview with London's Financial Times newspaper, Ansteel chairman Zhang Xiaogang said the Chinese industry had to prepare for a "long-term struggle", and even bigger steelmakers would struggle for profitability until weaker producers were forced out of the market and oversupply was eliminated.

He said the poor financial outlook for the industry would limit Chinese steelmakers' ability to make big investments overseas.

Ansteel is half owner of Gindalbie Metals' $2.6 billion Karara magnetite mine in the Mid West, and the Australian-listed company's biggest shareholder. Gindalbie and Ansteel are expected to make a decision later this year on whether to push the button on the second stage of the project, which would double production at Karara to 16mtpa.

That decision could be made more complex by Mr Zhang's downbeat outlook for the steel sector, and for benchmark iron ore prices, which he said would average $US110 to $US120 this year - implying the steel boss expected further falls in the second half of the year.

Iron ore prices hit $US158.90/t in February, but have since fallen sharply, closing last week at just above $US110/t. According to Bloomberg figures, the benchmark iron ore spot price has averaged just over $US140/t for the year to date.

Mr Zhang said the oversupply in the industry meant even bigger steelmakers such as Ansteel would alternate between small profits and small losses.
Gindalbie shares have been hit hard over the past six months, closing last week at 9.5¢, their lowest level in eight years.