Perth - Strong Chinese demand was likely to raise iron ore contract prices for a sixth consecutive year, with the trend showing no signs of abating, Warwick Smith, Rio Tinto Iron Ore's managing director for expansion projects, said yesterday.
Early forecasts were for iron ore contract prices to increase by between 5 percent and 10 percent next April, but projections now showed that prices could rise by up to 30 percent, Smith said.
All the drivers of steel and iron ore demand in China, such as increased urbanisation and industrialisation, were strong: "There is no change in trend at the moment."
At the same time, producers battled keep pace, Smith added. The outlook for the commodity, which is used in the production of steel, was good in the short and medium term.
Five years of rising ore prices have boosted profits at diversified mining multinationals, including Rio Tinto, BHP Billiton and Anglo American, as well as at focused South African producers such as Kumba Iron Ore and Assmang.
Smith said China was now importing about 400 million tons of iron ore a year and analysts were forecasting those imports to grow to 500 million tons a year.
As prices have risen, China has lifted domestic production.
"It's a very strong picture," Smith said. "The major producers have struggled to meet the rapid growth in demand."
Kumba and Assmang are increasing their output to meet the demand. South Africa produces close to 40 million tons of iron ore a year from its Northern Cape mines, mainly for export.
Rio Tinto, the world's second-largest producer, mines iron ore mainly in Western Australia.
With all the plans to increase ore output, mainly in Australia and Brazil, Smith said it was unclear when supply and demand would be in balance globally.
The earliest that the market could come into balance could be three to five years from now.
However, Rio Tinto was forecasting continued strong growth in demand that would result in a lag in the supply of iron ore.
"In the longer term, we see the Indian economy following in China's footsteps," Smith said.
Steel consumption in India was very low, he noted, while China "has moved up that steel intensity curve, following the other industrialised countries such as Japan, South Korea and before that the US and Europe".
In the future, India's iron ore exports could slow as the Indian economy required more steel.
When the market moved into balance, marginal suppliers would tail off first, especially domestic Chinese iron ore mines.
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