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Thursday, March 24, 2011

Mining giants eye China's west for future growth


Thu Mar 24, 2011 7:40am GMT

March 24 (Reuters) - The world's biggest iron ore producers are looking to China's undeveloped western regions for future growth as steel output on the country's thriving eastern coast nears its peak.

Speaking at a Metal Bulletin conference in Beijing, mining executives said the industrialisation and urbanisation of western regions like Xinjiang will need soaring volumes of steel and keep Chinese demand for imported ore at high levels.

"Global iron ore demand for the foreseeable future is strongly driven by China," said Sam Walsh, iron ore director with Rio Tinto , the world's second-biggest iron ore producer.

"Steel use in high-intensity export-dominated cities like Shanghai, Tianjin and Beijing is already at the high levels of developed markets like South Korea, but what is truly remarkable is what is yet to come -- inland provinces are just beginning to climb the steel intensity curve," Walsh said.

Government efforts to redress the west-east income gap through intensive infrastructure construction will drive demand, he said, adding that per capita steel consumption in western and central regions was still not even half that of coastal regions.

Luiz Meriz, China president of Brazil's Vale , the world's top iron ore producer, said on Tuesday that rumours of a slowdown in Chinese iron ore demand over the next few years were greatly exaggerated.

"Steel intensity (the amount produced per unit of GDP) varies per region and it is still very low in western China, though it might have peaked in east coastal regions," he said.

He said steel output in the east could peak by 2015, but growth in central and western regions would continue, adding that China's current 46 percent urbanisation rate was expected to grow 1 percent every year until it reaches 70 percent.

Annual seaborne iron ore trade has more than doubled in the last 10 years to around 1 billion tonnes, driven primarily by demand from China's steel industry, by far the world's biggest.

The surge has prompted global mining giants to expand capacity, with Vale aiming to raise output to 522 million tonnes by 2015, up from 311 million tonnes last year and Rio planning an increase of more than 100 million tonnes by investing big in its Pilbara property and its Simandou project in Guinea.

Official figures show that China imported 618.6 million tonnes of iron ore in 2010, down 1.43 percent from the 2009 record, and the industry predicts a 6 percent increase in imports this year.

However, steel industry consultants MEPS said in a research report this week that Chinese demand is being underestimated to the tune of 118 million tonnes over the next two years.

MEPS said analysts have been misled by China's official steel output figures, which could have been under-reported by as much as 47 million tonnes last year as mills tried to evade tough energy restrictions. (sourced:Reuters)

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