China's iron ore imports are expected to increase at a slower pace because of rising domestic supply and decline in the growth of steel output capacity, say industry insiders.

The country's import of iron ore rose to 187.9 million tons in the first six months this year, up 16.46 percent year-on-year. Australia continues to be the biggest exporter to China, accounting for 37.95 percent of the country's total imports, followed by India, Brazil and South Africa.

The output of large and medium-sized mines in China rose 29.28 percent to 321.28 million tons in the first half while the output of small mines was around 50 million tons.

"The large scale of mining by domestic steel companies is expected to curb further rises in ore prices," said Chen Xianwen, an official from the China Iron & Steel Association (CISA) at the International Iron Ore Market Seminar in Shanghai yesterday.

"The domestic demand for iron ore is expected to increase around 70 million tons this year. Apart from the domestic output growth, of around 40 to 45 million tons, we need only 30 million tons more from overseas, which rose only 9 percent from last year," said Zou Jian, chairman of the China Metallurgical Mining Enterprise Association, at the seminar.

"Large drops are expected in steel prices in 2009 because of the projected slowdown of world economic growth."

China's crude steel output rose only 14.64 percent in June, dropping 11.44 percentage points from January. "The output is expected to increase slower, which may lead to a shrinkage in iron ore demand," said Zou.

However, mainland steelmakers continue to be under price pressure because of the soaring transportation cost of iron ore.

"Transportation cost has become a key factor," said Liu Yongshun, director of APAC Resources Limited, who has been a Baosteel representative in iron ore negotiations in past years.

The average CIF (cost, insurance and freight) prices rose 21.54 percent to $74.64 per ton in the first half of this year, much more than the rising pace of FOB (freight on board) prices.

Chen Haoran, chairman of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, said: "Besides some factors like monopoly of the iron ore market by the three largest producers, the rising ore price is just a reflection of the market need."

Ore supply is expected to increase massively worldwide. Brazil's CVRD, the world's largest iron ore producer, is expected to produce 300 million tons of iron ore this year. RioTinto and BHP Billiton, two big exporters to China, are also expected to expand their capacity to 300 million tons in the years to come, according to the CISA's Chen.

(China Daily September 6, 2007)