SHIJIAZHUANG, China, March 26 (Reuters) - Chinese steelmakers warned on Thursday that more domestic firms could go under this year and that global iron ore prices could fall to as low as $45 a tonne as the industry comes to terms with massive supply gluts and weakening industrial demand.
Giant iron ore producers like Rio Tinto and BHP Billiton in Australia and Vale SA in Brazil have committed themselves to raising seaborne supplies by a total of 430 million tonnes over the 2013-2020 period, banking on sustained demand increases from top customer China.
But on Monday, benchmark iron ore for immediate delivery to China’s Tianjin port .IO62-CNI=SI dropped to $54.20, its lowest level since the index was launched in late 2008, with China’s weak purchases pushing prices down nearly 60 percent since the beginning of last year.
Steel mill bosses speaking at a conference in Shijiazhuang, the capital of China’s top steel producing province of Hebei, forecast that prices would fall further in the next six months, with no signs of improvement in the market.
“I think $45 is just a little higher than the production costs of the four big miners? It is hard to predict but prices won’t rise beyond $60 and the low will be $45,” said Shu Hong, deputy general manager of Shougang Concord International , a subsidiary of the Shougang Group, one of the country’s biggest state-owned steelmakers.
While lower raw material costs saw sector profits improve in the second half of last year, they have done little to offset a weak market or a surge in environmental compliance costs, and Shu and others said more mill closures were likely this year.
The priority for policymakers is to create a level playing field, with China Iron and Steel Association (CISA) vice-chairman Wang Liqun saying earlier that each mill should be paying “equal taxes, equal wages and equal environmental costs”.
Shougang’s Shu said his firm was now paying as much as 170 yuan ($27) per tonne of steel on environmental compliance.
Pang Dahang, an official with the Jinxi Group, a privately owned mill, said his company’s costs came in at just 60 yuan per tonne, but were now rising.
“If things go on like this, as a result of both market and environmental pressures ... there will be mills exiting the market,” Pang said. As much as 5 percent of China’s steel capacity could be vulnerable this year, he added. ($1 = 6.2103 Chinese yuan) (Reporting by David Stanway; Additional reporting by Ruby Lian and the Shanghai Newsroom; Editing by Tom Hogue)