Iron ore imports, costs surge in 2011

China imported a total of 686 million tons of iron ore in 2011, up 10.9 percent compared with the year before. Due to rising prices, total expenditure on imported iron ore surged more than 40 percent to US$112.4 billion last year, statistics from the General Administration of Customs showed Sunday.

The average price of imported iron ore stood at US$163.84 per ton in 2011, up 28 percent year-on-year.

An earlier statistics from the Ministry of Industry and Information Technology (MIIT) said China paid an extra US$25 billion for iron ore in 2011 due to the price surge.

Rising costs have encroached on the industry's profits. Earlier this month, top listed steelmaker, Baoshan Iron & Steel Co, reported a 43.35 percent drop in its 2011 net profit.

China now imports about 60 percent of its iron ore. More than 60 percent of the imports rely on the three mining giants Rio Tinto, BHP Billiton and Vale. This has been a major reason behind low profits in the industry.

But Wang Guoqing, an industry analyst with Beijing Lange Steel Information Research Center, said cost pressures for domestic steel mills will ease slightly this year and the dependency will also show further decline.

"Due to the growing supply and shrinking demand, iron ore prices are supposed to show a moderate decline in the coming year," said Wang.

Iron ore home production reached a historic high at 1.3 billion tons last year, up 27.2 percent compared to 2010, according to statistics from the MIIT last week.

Production output of the three mining giants is also growing. BHP Billiton said last week it expects to exceed previous projections of 159 million tons in 2012, and its fourth quarter output has grown 22 percent.

Iron ore inventories at main ports in China remained at a high level of nearly 100 million tons recently, which also indicates a slight oversupply in the industry.

"Commodity prices, such as iron ore prices, are not likely to show any big increase in the next few years due to slow growth expectations for the world economy, especially the Chinese economy," Jia Liangqun, chief analyst with industry information portal mysteel.com, told the Global Times yesterday.

Jia said worldwide steel demand will show a drastic decline given the world economic slowdown. "Demand will slow to 3 to 5 percent this year from the previous 7 percent."

Jia said given the expected price decline, China's iron imports will reach 700 million tons in 2012.