Global Iron Ore Capacity to Rise Faster Than China Demand Growth

Global iron ore capacity will rise faster than demand from China’s steel mills, the world’s biggest buyers of the raw material, said Baosteel Group Corp.

Steel output growth has dropped to less than 5 percent a year, from 20 percent between 2000-2006, Chairman Xu Lejiang told a conference yesterday in Shanghai. Baosteel is China’s third-biggest mill by output.

Iron ore has plunged 27 percent since Feb. 20, when it reached a 16-month high of $158.90, meeting the common definition of a bear market. The world’s biggest iron-ore producers, including Rio Tinto Group and BHP Billiton Ltd. (BHP), are planning $250 billion of new mines.

China’s slowing steel output growth comes as “iron ore capacity expansions come on stream,” Xu said. “While some smaller producers have deterred their expansion plans, we continue to see the top three are expanding as they believe they are more cost-competitive.”

Steel prices in China have tumbled to the lowest level in more than eight months amid production overcapacity and high inventories. Slower Chinese growth and Europe’s economic crisis have forced global steelmakers including ArcelorMittal (MT) and Tata Steel Ltd. (TATA) to report quarterly losses.

China won’t carry out a significant stimulus policy under the new government, Xu said. The steel industry’s worst time is yet to come, He Wenbo, chairman of Baosteel’s Shanghai-listed unit Baoshan Iron & Steel Co. (600019), said at the same conference yesterday. The company should prepare itself for five to 10 years in the future when market conditions are worse, He said.

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

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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