China's steel industry overestimated the country's demand for iron ore and as a result imported a record high amount of the material in March.
A surge of domestic steel output and price increases in the beginning of 2009 raised market expectations. Many domestic steel mills and traders increased orders for iron ore in February and March as they anticipated demand would continue growing, said Liang Shuhe, deputy-director with the Foreign Trade Department of the Ministry of Commerce, at an industry conference in the port city of Tianjin Monday.
China's iron ore imports topped 52.08 million tons in March, setting a monthly record high. It beat the last record which was just set in February. That's when the country imported 46.74 million tons of iron ore.
In the first quarter, China imported a total of 130 million tons of iron ore. In 2008, iron ore imports totaled 440 million tons.
"The imports in March mostly came from orders made in February. Iron ore was priced at $80 a ton then, but dwindled to $60 a ton now. It means huge unrealized losses for steel mills and traders who betted on price hikes," said Du Wei, an analyst on iron ore with Umetal.com.
Those unrealized losses for the 52.08 million tons of iron ore imported in March could be about $1 billion, Du said.
Liang said iron ore prices were hinged to steel prices.
"Domestic steel prices have dropped and will further dwindle. Thus it's inevitable for iron ore prices to go down," Liang said.
Iron ore stockpiled at ports stood at 70 million tons in March, nearing a historic high, according to anonymous sources within the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters.
Due to declining iron ore prices, an increasing number of domestic iron ore mines are closing down, said Zhang Ye, deputy-general-manager of China National Minerals Co Ltd. No specific figures were available.
"About 90 percent of China's iron ore mines are suffering from losses," Du said. "Steel is a kind of product that could be recycled and thus its scarcity could not be exacerbated in the long term."