UPDATE 1-Lower China steel demand growth to pressure iron ore-Baosteel

Tue Jun 4, 2013 3:34am EDT

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* Lower steel demand growth to pressure iron ore prices

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* Half of China's iron ore mines unprofitable at price of $100/T (Adds comments from Baosteel chairman, details)

SHANGHAI, June 4 (Reuters) - Growth in China's steel demand is expected to slow to a near-standstill in 2013, adding to pressure on iron ore prices after a 17 percent fall in May, the head of the country's biggest listed steelmaker said on Tuesday.

Spot iron ore prices have tumbled to around a seven-month low after poor economic data and fears of weaker steel output sparked concern that prices could fall further in the second half when new mine supplies are expected to come onstream.

Baoshan Iron & Steel Group (Baosteel) chairman Xu Lejiang said the company sees China's steel production rising just 1-2 percent in 2013 from a year ago.

That compares with a growth rate of 3 percent in 2012 and average growth of 10 percent a year between 2006 and 2011.

"China's urbanisation drive and infrastructure construction is continuing, but at a slower pace than expected," Xu said.

"Steel consumption will weaken in the second and third quarter, which will force mills to be more rational in their production plans. That means output growth will slow."

Overhyped expectations of a strong rebound in demand in the second-quarter have led China's army of steel makers to ramp up production since February to record levels..

Producers have also been reluctant to cut output for fear of losing market share, sending China's Jan-April crude steel output up 8.4 percent from a year ago to 238.1 million tonnes.

The forecast by Baosteel, whose listed unit is China's biggest steelmaker, means the rate of steel production would have to fall in coming months.

While output cuts by steel makers would pressure iron ore prices, Tsou Jo-Chi, Chairman of Taiwan's China Steel Corp , said the high cost of China's domestic iron ore production would keep a floor under prices.

A sustained period of low prices would force most of China's swing producers to idle mines, reducing supply.

About half of Chinese miners will become unprofitable should iron ore prices fall to $100 a tonne, while about 80 percent of local mines will start bleeding should ore prices drop to $80 a tonne, Baosteel's Xu said.

By comparison, big iron ore exporters such as Brazil's Vale and Rio Tinto Ltd have production costs of around $40 to $50 a tonne.

China produced 716.5 million tonnes of crude steel in 2012.

(Reporting by Ruby Lian and Fayen Wong; Editing by Richard Pullin)

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