Iron Ore Miners in China Seen Squeezed by Rising Seaborne Supply

Iron ore mining companies in China face a rising challenge from increased overseas supplies of the steel-making raw material, and some higher-cost capacity will probably be forced to close, according to BHP Billiton Ltd. (BHP)

The gain in global production is being led by Australia and Brazil and their new, low-cost output will displace marginal suppliers in China, Michiel Hovers, vice president of iron ore marketing at BHP, said at an industry conference today. Vale SA, the world’s biggest producer, plans to raise output almost 50 percent by 2018, Claudio Alves, global director marketing and sales, told the gathering in Singapore.

The biggest producers including Vale, BHP, Rio Tinto Group and Fortescue Metals Group Ltd. (FMG) have invested billions of dollars to expand output, betting on sustained growth in demand from China, the biggest buyer. Iron ore fell into a bear market in March amid forecasts for a global glut. Fortescue wouldn’t cut output even if prices extend declines as its costs are low, Business Development Manager Zhuang Binjun said today.

“Growth in seaborne supply growth will come largely from Australia and Brazil,” said BHP’s Hovers. “This new supply will be low-cost seaborne and displace marginal supply from high-cost domestic Chinese producers and other lower-quality iron ore imports into China.”

To contact the reporters on this story: Jasmine Ng in Singapore at jng299@bloomberg.net; Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Jake Lloyd-Smith, Brett Miller

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