China not prepared for iron ore shortage: industry adviser

Shanghai

CHINA'S steel industry isn't prepared for a looming shortage of iron ore, the metal used to make the building material that has risen to its highest price in almost five years, according to a prominent industry adviser in China.

Prices will "absolutely" continue to increase as mine closures in Brazil spur a market deficit in the second half of the year, Wu Wenzhang, founder and president of Shanghai Steelhome Information Technology Co, said on Saturday.

Iron ore prices surged to the highest since July 2014 at US$95.90 a tonne on Friday, according to Mysteel data.

"They don't realise what's going to happen," Mr Wu said on the sidelines of Steelhome's conference, which attracts about one thousand delegates from around China. Disruptions will amount to 60 million tonnes of lost supply this year, according to his "conservative" estimate.

"The only thing we can do is try to convince the steelmakers to believe what could happen with iron ore supply, and to prepare for the upcoming shortage."

The global iron ore market is reeling from a late-January dam breakdown at a Vale SA operation that left more than 200 people dead and triggered a sweep of mine closures across Brazil. Shipments from the South American country are already in contraction, while Australian disruptions and signs of a demand pick-up in China's steel needs offer a further boost to prices.

Mr Wu said he'd be watching iron ore stockpiles in China for signs of stress, with a slide below 100 million tonnes likely to trigger "devastating" price volatility.

Port stockpiles totalled nearly 150 million tonnes on April 5, according to Steelhome's own data. The safe minimum is about 120 million tonnes, Mr Wu said. BLOOMBERG