China, steel sector seen lifting iron ore prices

By Eric Onstad

MONTE CARLO, May 14 (Reuters) - Planned expansions by major iron ore producers will not be enough to curb prices as China raises steel output and steel sector margins are big enough to pay more for raw materials, an industry conference has heard.

Major mining groups have been touting big plans to boost iron ore production, raising concerns that within a few years the market could be overwhelmed with surpluses that might bring a collapse in prices.

But the combination of several forces is due to keep prices buoyant on the seaborne traded market, even after contract price hikes of 65-71 percent this year, the Metal Bulletin Iron Ore Symposium in Monte Carlo heard this week.

"We believe there will be another step change upwards over the next three to five years in the seaborne trade for iron ore on the demand side and it's a challenge to the iron ore industry," analyst Jim Lennon of Macquarie said.

Growth in steel demand over the next five years is projected to grow at a faster pace than production and China is due to fill the gap, Lennon said.

"We don't believe there's enough non-Chinese steel capacity being built at the moment and the shortages outside China will get worse. We believe they will have to ramp up steel production and exports at a much faster rate than they've done so far."

While China has been the main recent driver of the market in iron ore, the raw material to make steel, other emerging countries seeking to build up infrastructure will also boost demand in coming years, said analyst Daniel Brebner at UBS.

While Brazil, Russia, India and China make up the so-called emerging BRIC nations, a large group of smaller countries which Brebner dubbed "the next billion" have not caught the spotlight.