More than 25 per cent of steel production capacity added in China this year may sit idle due to a lack of raw materials and other resources, according to China Iron and Steel Association vice-chairman Luo Bingsheng. The forecast by the former head of the country's third-largest steelmaker, Shougang Group, highlights the risk of over-investment - the new buzzword among mainland economic planners and a danger highlighted by Premier Wen Jiabao last week at the National People's Congress. Excess investment in new capacity for low-end products such as basic construction steel would leave some new plants unable to secure sufficient raw materials to justify operation, predicted Mr Luo. 'Of the 52 million tonnes of new steel production capacity due to come on line this year, we expect only 38 million tonnes to have sufficient raw materials to function,' he said, adding that new ore mining and transport capacity could not cope with China's demand. Beijing is seeking to rein in excessive fixed asset investment by banning projects that are deemed small-scale, low-quality or environmentally unfriendly and those that involve old technology. Affected industries include steel, cement and aluminium. Projects under construction will be 'cleaned up' and those already completed will be asked to revamp within a certain period. The crackdown is expected to cool China's red-hot basic materials sector. Luo Zezhong, general manager of the country's eighth-largest steel producer, Panzhihua New Steel, said the State Council was expected to soon send working groups to check on companies in provinces where over-investment was most prevalent, such as Hebei, Jiangsu and Zhejiang. Steelmaking requires bulky materials including iron ore and coking coal. Under-investment in mining capacity and strong demand from China saw iron ore prices surge 18.6 per cent for this year's long-term international supply contracts. Domestic iron ore prices (transport included) climbed about 35 per cent last year. About 47 per cent of China's steel production uses foreign iron ore. As about 70 per cent of the world's iron ore resources are controlled by three mining giants in Brazil and Australia, transport is a major component of cost. Bulk freight rates from Australia to China rose from US$5.50 per tonne in 2002 to $20 currently. From Brazil, they surged from $10.50 to $40. However, the iron and steel association expected China's steel demand growth to slow from last year's 25.6 per cent to 13 per cent this year, as fixed asset investment - the key driver of steel demand - was planned by the central government to fall from 26.7 per cent to 15 per cent. Luo Bingsheng expected steel prices to be largely stable this year but to ease mildly next year as a slowdown in China became partly offset by faster global growth.