Chinese steel sector seen lifting iron ore prices Reuters reported that planned expansions by major iron ore producers will not be enough to curb prices as China raises steel output and steel sector margins are big enough to pay more for raw materials.
China’s major mining groups have been touting big plans to boost iron ore production, raising concerns that within a few years the market could be overwhelmed with surpluses that might bring a collapse in prices. But the combination of several forces is due to keep prices buoyant on the seaborne traded market, even after contract price hikes of 65% to 71% this year.
Mr Jim Lennon analyst of Macquarie said hat "We believe there will be another step change upwards over the next 3 to 5 years in the seaborne trade for iron ore on the demand side and it's a challenge to the iron ore industry. We don't believe there's enough non Chinese steel capacity being built at the moment and the shortages outside China will get worse. We believe they will have to ramp up steel production and exports at a much faster rate than they have done so far."
Mr Daniel Brebner analyst at UBS said that while China has been the main recent driver of the market in iron ore, the raw material to make steel, other emerging countries seeking to build up infrastructure will also boost demand in coming years. He added that "Their populations are going through this industrialization phase, exactly the same kind of situation that China has been going through."
While steel firms have complained about rising raw material prices, analysts said their price rises have more than compensated, giving them very attractive profit margins. Mr Lennon further added that since the start of 2008, steel prices on average have risen by over USD 400 a tonne, well in excess of the rise in costs of iron ore and coal of around USD 160 per tonne.
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