China Should Cut Foreign Ore to One-Third of Needs, Steel Association Says

China, the biggest buyer of iron ore, should reduce supplies by foreign companies to just one-third of its requirements by 2015 by boosting domestic output and investing overseas, the China Iron & Steel Association said.

Imports rose 4.1 percent in the first half from a year ago, while domestic production surged 17 percent, suggesting China is reducing its reliance on overseas shipments, Chairman Deng Qilin said at a members meeting today.

China wants to cut purchases from Vale SA, BHP Billiton Ltd. and Rio Tinto Group, which account for three-quarters of global trade, after they dropped a 40-year custom of setting annual prices and raised rates twice this year. Aluminum Corp. of China Ltd. and Wuhan Iron & Steel Group are leading an overseas drive by investing in African and Brazilian mines.

“To boost China’s pricing power for iron ore imports and ensure a healthy development of the steel industry, we must make full use of both domestic and overseas resources,” said Deng, who is also general manager of Wuhan Steel.

Imports gained 42 percent to a record 628 million metric tons last year, according to China’s customs data. Domestic ore output in the nation was about 238 million tons at 63 percent iron content, according to HSBC Holdings Plc.

Counter Measures

Aluminum Corp. of China yesterday agreed to invest $1.35 billion in the Simandou iron ore project run by London-based Rio Tinto. Wuhan Steel has invested in Brazilian miner MMX Mineracao e Metalicos SA.

China should study counter measures against the “oligopoly” of BHP, Vale and Rio, Shan Shanghua, general secretary of the steel association, said at the same meeting. The government should introduce measures encouraging domestic output equal to at least 40 percent of supplies needed, he said.

Chinese steelmakers will cut production this and next month because of an overcapacity, Wu Xichun, an adviser to the association and also a former chairman of the group, said today at the conference.

Prices won’t rebound until production cuts match weakening demand, Wu said.

Domestic prices of hot-rolled coil fell for seven straight weeks to July 16, as government measures to curb property speculation damped demand for steel. Prices have since gained 6.9 percent to 4,159 yuan a metric ton, according to Beijing Antaike Information Development Co.

Baosteel Group Corp., China’s second-biggest steelmaker, had a profit margin of 11.55 percent in the first five months, according to Wu. Profit margins at Hebei Iron & Steel Group, the nation’s biggest producer, was 2.77 percent, and 4.78 percent at Jiangsu Shagang Group Co., Wu said.

--Helen Yuan. Editors: Tan Hwee Ann, Indranil Ghosh

To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

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