steelmakers in china hit with global iron ore

Steelmakers in China hit with global iron ore shortage
By Tan Hwee Ann Bloomberg NewsPubli

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MELBOURNE: Steelmakers in China, the largest producer of the alloy, are struggling to buy enough iron ore to feed their mills because of a global shortage, signaling contract prices may rise for a sixth year, Credit Suisse Group said.

There are signs "major steelmakers, whose iron ore needs are normally fully covered by long-term contracts, have had to rely on spot supply," of the key steelmaking ingredient, Roger Downey and Ivan Fadel, analysts with Credit Suisse, said in a report Tuesday.

Annual contract prices have risen the past five years to a record because of demand from China. Steelmakers led by Baosteel Group, the biggest mill in the nation, will start talks with iron ore producers next month to set the benchmark prices for the year starting April 1.

"This is a year as tight as it was in 2004-2005," when prices jumped 71.5 percent, the analysts said. "The low hanging fruit is gone. Will there be enough iron ore?"

China overtook Japan as the largest buyer of iron ore in 2003 because of increased production of cars, buildings and appliances. Cia Vale do Rio Doce in Brazil, Rio Tinto Group of London and BHP Billiton of Melbourne account for about three-quarters of global seaborne traded iron ore.

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Iron ore prices on the spot market surged to $165 a metric ton, the Credit Suisse analysts said. That compares with the $51.47 a ton contract prices for benchmark Australian fines ore produced by Rio Tinto. Contract prices may rise at least 25 percent next year, Credit Suisse said. Merrill Lynch & Co. expects prices to increase 30 percent.

Crude steel production growth in China slowed again in August to 13 percent, half the pace reported in January, Credit Suisse said, citing government statistics. China's imports of iron ore may rise 18 percent to 386 million tons, the China Metallurgical Mining Enterprise Association forecasted this month.

"We do not think our estimated levels of crude steel production (495 million metric tons) and iron ore imports (390 million tons to 400 million tons) will be achieved because there isn't enough ore," the Credit Suisse analysts wrote. "The slowdown in steel production may also, at least partly, be owed to a shortage of iron ore on the seaborne