BHP Billiton

Baosteel warns of potential worldwide second-half slump in demand for iron ore

PUBLISHED : Thursday, 30 August, 2012, 11:33am
UPDATED : Thursday, 30 August, 2012, 11:49am

Global demand for iron ore will not grow and could even drop in the second half of 2012 compared with the first six months, with supply also rising, a senior official at China’s Baoshan Iron and Steel Co said on Thursday.

Global seaborne supply of iron ore would rise by more than 50 million tonnes in the second half from the first half, Zhang Dianbo, head of purchasing at Baosteel, China’s biggest listed steelmaker, told an industry conference.

Demand for iron ore, a key steelmaking ingredient, has slumped as a sluggish global economy has forced steel mills around the world to cut production. In China, the world’s top steelmaker, many plants have halted fresh purchases on poor demand for the metal, falling steel prices and swelling inventories.

A further drop in demand, along with new mine supplies, could push the current three-year low iron ore prices lower still in coming months, threatening profits at mining giants Rio Tinto and Vale.

“Along with slowing industrialisation, urbanisation and infrastructure investment, China’s steel demand growth has been falling,” Zhang said.

“Average annual growth for China’s steel demand between 2011 and 2015 was seen at 4.2 per cent, but whether we can reach that growth is now a question,” Zhang added.

China’s January-July crude steel production grew just 2.1 per cent to 419.5 million tonnes from year earlier, compared with 10.3 per cent growth in the same period last year.

Zhang said China’s steel output would reach a maximum of 700 million tonnes over the next 15 years before starting to fall.

China steel futures hit a record low of 3,327 yuan (US$530) per tonne on Wednesday, dogged by weakening demand that has pushed down the price of raw material iron ore to levels last seen in 2009.

The sustained drop in Chinese steel prices, which has been on a downtrend since April, has curbed the country’s appetite for iron ore, with the price of benchmark 62-per cent grade at US$90.30 per tonne on Wednesday, according to data provider Steel Index.

Shares in some of Australia's biggest iron ore producers fell in reaction to declining iron ore prices in China, which has underpinned a boom in the Australian mining sector. Fortescue Mining was down 3.3 per cent in late morning trade at A$3.53 on Thursday, BHP Billiton was off 2.2 per cent at A$32.03 and Rio Tinto was down 3.8 per cent at A$48.63.