SHANGHAI, May 11-- Prices of iron ore, trading near a two-year high, may continue to climb and lead to production cuts and losses for Chinese steelmakers.
The raw material price may keep rising in the second and third quarters, Deng Qilin, chairman of the China Iron & Steel Association, said yesterday in an interview in Beijing while attending a conference. Jiangsu Shagang Group Co, the nation's fifth-largest steelmaker, will consider reducing production on higher costs, Chairman Shen Wenrong said at the conference.
The global economic recovery has spurred demand for iron ore and allowed Vale SA and BHP Billiton Ltd this year to break with a 40-year custom of selling on annual contracts and win a 90 percent price increase for quarterly sales starting April 1. Crude steel output in China, the largest maker, jumped 25 percent in the first quarter.
"Production cuts may happen", should Shagang be unable to buy iron ore at less than $170 a metric ton, Shen said.
Iron ore for immediate delivery fell 1.3 percent last week to $183.50 a ton, according to Metal Bulletin. It touched $189.50 a ton for the week ended April 30, the highest since March 2008. Import prices averaged $96.31 in the first quarter, the China Iron & Steel Association said on April 28, an increase of 20.7 percent from a year earlier.
Vale, BHP Billiton and Rio Tinto Group, the three largest exporters of iron ore, threatened to cut supplies to China unless steelmakers accept their price demands, according to the steel group last month.
All Chinese steelmakers have signed quarterly contracts for iron ore or have other provisional agreements in order to obtain supplies for production, Shagang's Shen said, reiterating comments made in April.
Deng's price forecast contrasts with one made by UBS AG last month, which had said prices may drop 30 percent in coming weeks on concerns about a Chinese slowdown. The Chinese government in the past month moved to cool its real estate market after prices surged and the fastest economic growth in almost three years stoked concerns of an asset bubble.