According to a report from the Mysteel consultancy in Shanghai, China is expected to increase steel supply by 8.6% in 2010 to 621.5 million tones. Xinhua news agency said that despite an expected increase in domestic prices caused by increased costs of iron ore, coking coal and other steelmaking ingredients.
The need for more steel stems from the multi billion dollar, multi year economic stimulus package that has boosted production of such steel bearing products as agricultural machinery and equipment, infrastructure construction materials, environmental protection equipment, motor vehicles and emission-reduction equipment. Since the construction of these key projects usually lasts for three years and longer.
Xinhua said that expanded consumption for such raw materials as steel will continue in 2010 and 2011.
Meanwhile, the Chinese central government has forecast that China's economy as measured by gross domestic product will grow by between 8% and 10% in 2010. Some private economists put the figure even higher, at more than 10% since Mr Li Yizhong, minister of the China Ministry of Industry and Information Technology has announced fixed-asset investment growth of 22% this year.
The official China Securities Journal has reported that with demand for steel expected to boost production in 2010, the China Iron and Steel Association expects foreign iron ore miners to call for a 20% to 30% increase in benchmark iron ore prices in 2010. This forecast is in line with current market expectations as analysts have said the 2010 Asian benchmark price might inflate on Chinese buys.
However, Mr Luo Bingsheng vice chairman of CISA, tells the newspaper that the proposed price rises would complicate negotiations with Rio Tinto and BHP Billiton of Australia and Vale of Brazil. China and the three major seaborne ore suppliers have been at odds for more than a year and actually never settled on a 2009 contract price. Instead, CISA members bought from the three mining firms on spot deals.
Meanwhile, Reuters is reporting that India's 5% iron ore export tax hike may tempt Chinese buyers back into a loveless annual relationship with the big three miners in preference to the uncertain supply and volatile prices of the spot market. As has been reported on Purchasing.com, India's boost of the export taxes on iron ore likely will add USD 4 to USD 5 a tonne to the cost of Indian iron ore. Indian exports most of its iron ore to China, which already has been accumulating inventories ahead of 2010 price negotiations with major iron ore miners in Australia and Brazil.