The Ministry of Commerce (MOFCOM) has forecast that the price of iron ore can be expected to follow a downward trend in 2006 after this year's drastic rise.

 

Quoted by the Economic Daily on December 6, an unnamed official from the ministry's Foreign Trade Department said tight supply and demand in the global iron ore market would come to an end next year, and with ample supplies prices will fall accordingly.

 

In the next few years, the official said the world's major suppliers would increase investment in exploiting iron ore by over US$5 billion.

 

Zou Jian, chairman of the Metallurgical Mines Association of China, made a bolder estimate of up to US$10 billion, Xinhua News Agency reported on December 6.

 

He said large suppliers in Brazil, Australia, the UK and India will continue to invest heavily to increase their output.

 

According to Zou: Brazil's CVRD plans to increase investment by US$2.5 billion to raise annual output from 200 million to 300 million tons by 2008; Australia's BHP Billiton plans to inject US$1.4 billion into exploitation to increase annual output by 70 percent in four years; the UK's RioTinto plans to increase investment in Australian mining areas by US$1.4 billion before 2008; and India's mining department will do their best to increase equipment and raise annual output from 120 million to 160-180 million tons.

 

Xinhua quoted RioTinto CEO Leigh Clifford as telling China Business News that they would not only increase investment in mining but also in equipment in areas such as transportation.

 

The commerce ministry said the increase in supplies from both these companies and new iron ore exporting countries will increase 2006's oceangoing trade volume by 62 million tons from that in 2005, while the increase in demand will not exceed 50 million tons.

 

China's investment in the iron ore industry has grown markedly: in January to August, fixed asset investment totaled 14.659 billion yuan (US$1.81 billion), a year-on-year increase of 98.7 percent, and investment is expected to top 24 billion yuan (US$2.97 billion) by the end of the year.

 

Zou said that, despite this, global iron ore resources are still largely controlled by BHP Billiton, CVRD and RioTinto, which will increase difficulties in price negotiations.

 

The ministry official said that in 2006 the world steel market would be stable, but that major European and US steel companies will limit steel output to maintain prices, so demand for iron ore will not increase greatly.

 

The official forecast that China's iron ore imports would increase 35 million tons next year, a sharp fall from this year's growth rate.

 

In the first 10 months of 2005 China imported 220 million tons of iron ore worth US$14.85 billion, year-on-year increases of 32.2 and 44 percent respectively. The growth rates were 6 and 135 percentage points lower than those in the same period of 2004.

 

The official attributed the decrease in imports to the government's macroeconomic control policy, which has resulted in an oversupply of steel due to increasing supply and weakening domestic demand.

 

The official also said that if the price of iron ore continues to rise, the government may take part in the price negotiations.

 

The ministry said it would closely monitor iron ore imports, give timely analysis of price trends and provide information for domestic companies.

 

It added that it would also intensify coordination and supervision of imports, rectify and regulate them to ensure stable supply and impel the price of iron ore to drop to a reasonable level.

 

Qi Xiangdong, deputy secretary of China Iron and Steel Association (CISA), was quoted by Xinhua as predicting that the global iron ore market would not undergo big fluctuations next year, but was not stable yet.

 

(China.org.cn by Yuan Fang, December 12, 2005)