Shutting of small steel producers may speed up if ore prices soar

Beijing may speed up closure of small and inefficient steel mills to curb excessive capacity if iron ore prices surge next year, according to an industry official.

'If the suppliers raise iron ore prices drastically, it may prompt the Chinese government to accelerate the elimination of excessive production capacity,' Chen Haoran, chairman of the China Chamber of Commerce of Metals, Minerals and Chemicals Importers, said at an industry conference in Hong Kong yesterday.

Robert Ren Qingping, the chairman and general manager of metal trader and distributor Shanghai Wubo Steel Structure Material, said he expected ore prices to surge 35 per cent next year amid rising demand and soaring freight rates.

Industry analysts are expecting an increase of between 25 per cent and 50 per cent.

Mr Chen, who declined to make any forecasts, said a 35 per cent increase was 'very high' which mainland steelmakers would not be able to afford.

China, the world's biggest producer and exporter of steel, plans to cut capacity by 55 million tonnes by 2010, mainly by shutting small and inefficient mills, as it aims to raise the industry's competitiveness and save on energy, according to Mr Chen.

'The government and the industry are highly aware of the consequences of excessive production capacity,' he said, adding that the mainland's rising output did not pose any threat to international markets because it mainly aimed at meeting domestic demand.