iron ore supply is slow to meet demand

Cia. Vale do Rio Doce and Rio Tinto Group, the world's largest and second-largest iron ore exporters,
said China's demand will keep the market for the steelmaking
material tight as supply growth is slower than expected.
There may be a shortage of iron ore until 2011, Eduardo
Bartolomeo, executive director of logistics at Vale, said today in Shanghai. Vale, the largest exporter, may find it ``very difficult'' to meet expansion targets on time, he said.
Demand from Chinese steelmakers, the world's biggest buyers of iron ore, has raised prices fivefold since 2001 to a record,spurring Vale, Rio and BHP Billiton Ltd. to expand mines. China will double imports in the next six years, Rio Tinto said today.
``The tightness may last for a few years, and we can't see when is the turning point,'' said Zhou Xizeng, a Beijing-based analyst with Citic Securities Co.
Iron ore prices may rise 20 percent next year, and could jump further should there be delays in output, Credit Suisse Group said last month. Rio Tinto's plans to expand in Guinea was set back after it received a letter from the country's president purporting to rescind a concession in the West African country.
``Supply won't come on as fast as people are thinking and demand will remain tight,'' Sam Walsh, chief executive officer of Rio's iron ore unit, said today in Kalgoorlie, Western Australia state. Demand is ``incredibly strong,'' he said.

Rising Chinese Imports

Chinese iron ore imports have increased by 70 million
metric tons from a year ago, Walsh said.
``This is pretty robust and there hasn't been the projects
to come on board to compensate for this,'' he said. London-based
Rio intends to fight for its rights in Guinea, Walsh also said.
Rio wants to triple production to 600 million tons a year
eventually with expansions in Australia, Guinea and Brazil. It
produced 133 million tons of the ore in 2006.
Vale, based in Rio do Janeiro, is planning a $59 billion
expansion over the next five years, which will increase
iron ore output by 40 percent to 450 million tons by 2010.
It is also planning to double nickel and copper output.
``Most growth that people see for the next five years are
coming from Asia, mainly China,'' Bartolomeo said. Vale is
``very eager'' to meet deadlines for expansion plans, he said.

New Ships

Vale yesterday said it agreed to buy 12 ships from China's
Jiangsu Rongsheng Heavy Industry Group Co. to serve its fastest-
growing market. The vessels may help to lower the ``level of
utilization'' of ships and transport costs, Bartolomeo said.
Freight charges from Tubarao in Brazil to China were
$84.658 a ton on Friday, almost three times the $30.359 cost of
shipping iron ore from Australia, according to the Baltic
Exchange. Rio Tinto Group and BHP Billiton this year won a
bigger price increase for their Australian iron ore from Asian
customers because it's cheaper to ship than Brazilian ore.
``It is about recognizing the significant disadvantage the
Brazilians are at in relation to shipping,'' Rio's Walsh said.
``If by buying big ships that reduces their costs, then we have
the option of reducing our costs further by buying the same
ships.''