Big iron ore price hikes by global miners such as Brazil's CVRD will spur China, the top importer of the raw material for steel, to expand output at home and slash imports this year, a leading industry official said. China, which consumes a quarter of the world's steel, would also impose rules to reduce the number of qualified ore importers by four-fifths to about 100 by May 1 to cool competition for the resource, said Luo Bingsheng, vice chairman of the China Iron and Steel Association.
"China's imports of iron ore this year will be much lower than earlier expectations of growth by 30 million tonnes," Luo said in an interview late on Sunday at his hotel in Beijing on the sidelines of an annual meeting of parliament.
An "overly high" 71.5 percent iron ore price hike for 2005 imposed by international miners - including Companhia Vale do Rio Doce (CVRD) and Anglo-Australian giants BHP Billiton Ltd/Plc. and Rio Tinto Ltd/Plc. - would hurt the global mining business in the long run, Luo added.
Major steel makers, from industry leader Baoshan Iron and Steel Co Ltd to Angang New Steel Co and Wuhan Iron and Steel Co Ltd, had agreed to the price rise, due to take effect next month.
"They have secured their profits with the price hike, but in the long term it will bring them losses," said Luo, clad in a dark-blue business suit with a packet of cigarettes in hand.
"The high ore price has stimulated more investment in output expansion, which will fuel a huge increase in domestic output."
Luo declined to offer 2005 forecasts. But he said Chinese port stockpiles of iron ore had climbed to as high as 40 million tonnes - or more than this year's projected increase in imports - after actual arrivals hit 208 million tonnes in 2004.
China needed to import 188 million tonnes that year, he said.
Chinese iron ore output grew 31 percent - or 5.12 million tonnes - in January from a year earlier, and would continue to expand in coming months, he said.
However, iron ore production expansion both in China and abroad may trigger a global glut as early as 2007, he reckoned.
"We see tight supply in the first half of the year. This tightness should ease in the second half, but next year, supply and demand would be balanced and afterwards, supply would be in surplus," said Luo, who has worked in China's steel industry for four decades after graduating as an engineer in 1963.
For now, mainland steel mills would try to transfer the increased cost of iron ore to end-users mainly in the real estate, automobile and ship-building industries, he said.
Export prices on steel products are set to rise in 2005, narrowing a 20 percent price differential with global markets in 2004 that arose because of cheaper domestic labour, he said.
Beijing would attempt to curb domestic competition for iron ore from overseas. Luo said the industry would vote to decide which companies were qualified to import iron ore.
Only steel mills with annual production of 1 million tonnes and trading firms with imports of more than 300,000 tonnes in 2004 would meet import criteria, he said.
That meant the number of domestic importers would dive to about 100 from 523, Luo said, and from May 1, only firms on the list would be allowed to buy ore from international markets.
"Many importers will lose their qualification," he said. "It will help co-ordination in the industry."
He estimated China's economic growth of about 8 percent would fuel growth in steel production to 10-13 percent, to about 300 million tonnes in 2005, despite tight coal and electricity supplies.
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