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International iron ore prices are likely to drop next year as supply and demand are reaching a balance, according to a senior Chinese commerce official.

 

"The international iron ore prices will be more reasonable because the supply keeps growing and demand is slowing down," said Lu Jianhua, director of foreign trade at the Ministry of Commerce. His remarks were made as Chinese iron ore buyers prepared to start negotiations with international miners for a long-term contract in 2007.

 

According to the ministry's statistics, China imported 247 million tons of iron ore in the first three quarters of this year, up 24.2 percent year-on-year. Although the growth rate remains high, it is 7 percentage points lower than the last year.

 

"It is the first time that figure has been below 30 percent since 2003," Lu said.

 

He also predicted that the growth rate of China's iron ore imports would slide some 12 percentage points in the whole year, with the country's iron ore imports totalling 320 million tons.

 

In the first nine months, Chinese steelmakers saw some price drops in imported iron ore. The average price was US$62.7 per ton, 7.2 percent lower year-on-year.

 

"The price in the cash market has declined one-fifth year-on-year to US$63.4 per ton," Lu said, and the gap between the cash market price and the price set by the long-term contract has been narrowed.

 

He said domestically produced iron ore could replace imported iron ore to a certain extent because of its lower prices and growing production.

 

China's major mines produced 406 million tons of iron ore in the first nine months of 2006, up 37.7 percent year-on-year. The growth rate is expected to stand at 30 percent for the whole year.

 

International iron ore prices rose 71.5 percent in 2005, which increased Chinese steelmakers' raw materials costs by billions of dollars. This situation required China, the world's largest iron ore buyer, to seek a larger say in the international market.

 

In the negotiations for a 2006 contract, China's largest steel producer Shanghai Baosteel Group was selected as the only representative of Chinese buyers to fight against an alliance formed by major suppliers such as Companhia Vale do Rio Doce, BlueScope and Hamersley Iron.

 

China only reluctantly agreed to a further 19 percent rise in iron ore prices this year.

 

Talks for the next year's long-term contract always start in November or December and end before delivery starts in April.

 

Major Chinese iron ore traders are likely to join these negotiations.

 

(China Daily October 25, 2006)