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BHP Billiton and Rio Tinto are over-estimating long-term Chinese steel production growth and iron ore prices are unlikely to rise from current depressed levels, according to a senior representative of China’s steel industry.
Li Xinchuang, deputy secretary-general of the China Iron and Steel Association that represents China’s biggest state-owned steel mills, said Chinese steel production, now at about 800 million tones per year, could not grow beyond 900 million tonnes.
“That will be the peak level, we understand it cannot go over 900 million tonnes — we think roughly 800 million to 870 million,” Mr Li said on the sidelines of the International Mining and Resources Conference in Melbourne.
BHP and Rio, who are increasing iron ore production and putting pressure on prices, are both forecasting Chinese steel production will peak at 1 billion tonnes per year or more. “It cannot, trust me, I have been in the business 30 years,” he said.
Asked whether BHP and Rio misunderstood China, Mr Li said: “Maybe they keep that story for investors, I don’t know.” Mr Li, who is also president of the China Metallurgical Industry Planning and Research Institute, said the figure was based on previous steel use rates when industrialised nations like the US and Japan peaked in their steel use.
Mr Li said he did not expect prices to rise from current levels of $US81.70 per tonne, a rive-year low.
“My understanding is the price will be around $US80 for a long time because of the volume being produced,” he said.
The average price for iron ore the year to date is now $US105.20 a tonne, down from last calendar year’s average of $US135 a tonne.
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