Iron Ore Seen Missing Last Year’s High as Slowdown Curbs Demand

Iron ore prices are unlikely to match last year’s highs as steel use grows at the slowest pace in three years amid concerns a faltering global economy will curb demand from Europe to China, the world’s biggest steelmaker.

“Steel production this year is going to be a little softer than we saw last year,’ said Natalie Robertson, an analyst at Australia & New Zealand Banking Group Ltd. Ore prices “won’t be as high as last year. Last year we felt it was at unusually high levels,” she said.

Global steel use will rise 4.5 percent this year, less than the 5.4 percent forecast in October by the World Steel Association, and may be as low as 1.2 percent, according to a Bloomberg survey. The gain, the lowest in three years, may be tempered by cooling economies in China and Europe, where orders for steel products for homes, cars and machinery are stagnating and will keep the alloy’s prices and overseas shipments muted.

“Our base case is Chinese steel growth is going to slow from the 8 percent to 10 percent range they’ve been running at over the past few years,” said Daniel Hynes, a director of commodity research at Citigroup Inc. in Sydney . “We’re looking at 3 percent growth” this year.

China Steel Output
Steel production in China, which accounted for about 46 percent of the global total in 2011, fell in each of the six months through November before gaining in December, according to the World Steel Association, the Brussels-based trade group that promotes the steel industry.

China’s steel industry will face a ‘grimmer’ test in 2012 on reduced demand and rising costs of fuel and iron ore, Zhu Hongren, spokesman and chief engineer for the Ministry of Industry and Information Technology said at a briefing in Beijing today. The nation boosted annual steel output by the slowest pace in three years in 2011 as its economy cooled last quarter, cutting demand.

China’s crude steel production gained 8.9 percent last year to a record 683.3 million tons, the National Bureau of Statistics said on Jan. 17. Annual production gained 10 percent in 2010 and 13 percent in 2009, after climbing 2.3 percent in 2008, according to the China Iron and Steel Association.

World Bank
The World Bank on Jan. 18 cut its global growth forecast by the most in three years, saying that a recession in the euro region threatens to exacerbate a slowdown in emerging markets such as India and Mexico. The world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, it said. The euro area may contract 0.3 percent, compared with a previous estimate of a 1.8 percent gain.

“There’s definitely a feeling that the market won’t be as tight as last year and we may have seen the highs,” Hynes said.

Iron ore with 62 percent content delivered to the Chinese port of Tianjin gained 1.1 percent to $144.80 per metric ton yesterday, data from The Steel Index showed. Prices rose 2.8 percent last month after gaining 5.8 percent in December and climbed as high as 191.90 a ton in February last year.