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http://www.theaustralian.com.au/business/mining-energy/china-stokes-mining-boom-with-25pc-surge-in-steel-production/story-e6frg9df-1226065971400

China stokes mining boom with 25pc surge in steel production

Michael Sainsbury, China correspondent
From: The Australian
May 31, 2011 12:00AM


CHINA's steel production is expected to soar by up to 25 per cent over the next five years, removing any fears of a decline in demand for Australian iron ore and coking coal in the medium term.

China is the world's leading steelmaker, producing about 46 per cent of global supply, and iron ore is the linchpin of Australia's $100 billion plus two-way trade with China, accounting for about 30 per cent of our exports.

China's state-run China Iron and Steel Association (CISA) has unveiled its latest estimates of steel production, forecasting output of between 650 million and 750 million tonnes by 2015, up from 612 million tonnes last year.

The figures are based on China's latest Five-Year Plan (2011-2015), which was signed off by the National People's Congress in March, and annual GDP growth of between 8 per cent and 9 per cent for the next five years, seeing a rise in production of 11 per cent to 25 per cent.

"The latest Five-Year Plan is great for the industry," Fortescue Metals executive director Russell Scrimshaw told The Australian.

"There are railways, airports and a new commitment to low-cost housing. We estimate steel production might reach 750 million to 780 million tonnes by 2015, with a 20 million to 30 million-tonne annual increase, and iron ore imports will be about 820 million tonnes by 2015," Umetal.com analyst Xu Guangjian said.

China mines about 50 per cent of the iron ore needed for its steel mills, but its home-grown resource is magnetite, a form of ore with low iron content of between 20 per cent and 30 per cent.

The other 50 per cent is imported high-content haematite from Australian, Brazil, India and a handful of other nations, with Africa poised to become a major producer in coming years.

Australia's position has also been bolstered by a recent ban on iron ore exports by India, which supplies about 80 million tonnes a year to its neighbour.

A continuing mismatch between supply and demand has pushed iron ore prices to record highs over the past six months, as steel production across the globe continues to rise. But major projects to increase iron ore production -- including a significant boost in capacity in the Pilbara -- are yet to come on line.

And CISA has continued to complain about high prices, which are hitting steel industry profitability. In the first quarter of the year, the average import price for iron ore was $US157.60 a tonne, a year-on-year increase of 57 per cent, according to CISA.

Based on 230 million tonnes of quarterly import volume, China's steel industry would spend an extra 13.2 billion yuan ($1.9bn) due to the increasing price of iron ore, the deputy secretary of the Party Committee of CISA, Luo Bingsheng, said. "Production costs, especially with high price of ore, will support the steel price not to drop dramatically."

Mr Xu said the steel price would remain at high levels and the recent lowering of prices by mills would be temporary, since demand remained strong. "But some restrictive policies, like the limit of electricity usage, will affect the price for a period of time."

As well as iron ore, Australia is emerging as a major supplier of coking coal, which is also used in Chinese steelmaking.