2010-03-25 15:07

SHANGHAI: China's steel consumption is expected to remain high but grow slowly in the short term, the chairman of China's Baosteel said on Thursday.

Over the long term, Xu Lejiang added, China's demand for steel-making raw materials, including iron ore and coking coal, will shift from strong to slow growth.

Xu, chairman of China's biggest steel mill, Baoshan Iron and Steel Co as well as its State-owned parent, made the comments in remarks prepared for a speech, a copy of which was seen by Reuters.

"With the completion of China's industrialisation, the intensity of steel consumption required by the economic growth will gradually decline, and the slowdown in steel consumption growth is inevitable," Xu said.

"China's steel industry will enter an era of slow growth in the medium to long term."

As a consequence, demand for iron ore, coking coal and other raw materials for the industry, will shift from strong growth to low growth, Xu added.

China's steel mills are in talks with global mining giants, including BHP Billiton, Rio Tinto and Vale, on this year's iron ore supply contracts.

Top iron ore miner Vale said it has implemented a more flexible pricing system for iron ore, shifting from a decades-old benchmark system amid reports it is seeking to more than double ore prices in 2010.

That move may face fierce resistance from steel makers in Europe as well as China.

Overseas investment

Xu expected a more favorable overseas investment environment for Chinese steel companies due to oversupply of raw materials in the global market and slowing growth in China's demand for seaborne raw materials.

Chinese steel companies will more frequently participate in exploration and mining, acquisition of mines, as well as building new steel mills, Xu said.

"In the medium to long term, the resource monopoly that hangs over China's steel industry will be broken," he said.

China, the world's top steel producer, imported 627.8 million tons of iron ore in 2009, up 42 percent on the year, raising China's reliance on imported ore to 63.9 percent of its needs.

Chinese companies have been seeking mining resources globally to secure supplies for the country's future development. In the latest move, Chinese metals group Chinalco has signed a $2.9 billion pact with Rio Tinto to develop an African iron ore mine.