Recent slump in iron ore prices 'normal', Baosteel executive says

General manager says the mainland steelmaker may stand to benefit after prices of the raw material fall the most in more than four years

PUBLISHED : Wednesday, 12 March, 2014, 1:26am
UPDATED : Wednesday, 12 March, 2014, 1:26am

The recent slump in iron ore prices was "normal" and marked a return to its intrinsic value after years of inflation, said He Wenbo, the general manager of Baosteel, the mainland's largest steel producer.

"Iron ore prices above US$100 per tonne, in my view, would be a bit too high," He said yesterday on the sidelines of the annual meeting of the National People's Congress in Beijing.

Iron ore prices fell the most in more than four years this week to US$104.70 a tonne, the lowest level since October 2012 and down from a recent peak of US$142.80.

Analysts said the recent slump of iron ore prices was not mainly due to weak demand from the mainland, the world's biggest iron ore consumer, but instead had been caused by the unwinding of trade financing deals using iron ore as collateral, which dragged prices into a bear market.

He said the falling price might help boost profitability at Baosteel, which made 10.2 billion yuan (HK$12.9 billion) last year. The Shanghai-based company relies on iron ore imports from Australia and Brazil.

Iron ore prices above US$100 per tonne, in my view, would be a bit too high

The firm planned to keep steel production unchanged at 47 million tonnes this year, He said, adding that it had no plans for mergers or acquisitions until after 2015.

A new, world-class plant in Zhanjiang, Guangdong province, with nine million tonnes of annual capacity, would begin production in 2016, he said.

Baosteel had also been reducing six million tonnes of steel production capacity located in the heart of Shanghai to cut environmental costs and better suit urban development needs, he said.

The move is part of a nationwide industrial-upgrading and pollution reduction campaign launched by the central government, which aims to pursue a healthier and more sustainable growth model over the next decade.

He said Baosteel invested six billion yuan a year in research and development.

The industry veteran cautioned against drastically cutting so-called excess capacity, saying mainland demand for steel was tipped to rise for some years.

The mainland produced 779 million tonnes of crude steel last year, 7.5 per cent more than in 2012, He said.

Its steel consumption increased to 730 million tonnes last year and was likely to climb 3 per cent to 750 million tonnes this year, He said, with output forecast to grow at a similar rate.

"The demand for steel may continue to rise until 2018 or 2020, and then may stay at the peak level for several years before falling," he said.