China’s iron ore demand is expected to rise by a healthy 50 million tonnes in 2013, according to the National Development and Reform Commission, the communist country’s influential economic planning agency.
China’s imports of the steelmaking raw material increased 8% to hit a record 743 million tonnes in 2012, but increased demand will not be enough to offset surging supply.
According to the agency Chinese domestic iron ore supply will rise by 20 million tonnes and it expects the industry’s big three miners – Vale (NYSE:VALE), Rio Tinto (LON:RIO) and BHP Billiton (LON:BHP) – to add a combined 100 million tonnes.
Over the next two years new supply coming on stream could hit 300 million tonnes leading to massive oversupply, the agency estimates.
The benchmark CFR import price of 62% iron ore fines at China’s Tianjin climbed $0.70 on Monday to $136 and has been holding steady around these levels following a pullback from 16-month highs reached in February.
The price of iron ore is also still up over 55% up from three-year lows reached in September.
The NDRC predicts China’s crude steel production will reach 746 million tonnes in 2013, an increase of 4% compared to 2012. This is a slight improvement from the 2012 when output increased 3.1% to 716 million tonnes.
China’s steel output has risen for 31 straight years as the country’s spending on buildings, roads and railways reach an unprecedented 70% of its $7 trillion economy driving import demand for iron ore and metallurigical coal.
Coking coal prices have moderated, but contract settlements are up from three-year lows earlier in the year to a benchmark of $175 expected for the second quarter.
Unlike iron ore China is not dependent on imports for its coking coal needs and imports only make up around 10% of total consumption of roughly 170 million tonnes a year. Metallurgical coal comprises around 20% of blast furnace production costs.