Xu Kuangdi, president of the Chinese Academy of Engineering and also president of the China Federation of Industrial Economics, has stated that, if the Chinese steel industry follows the example of Japan's compromise to the big three global miners (Vale, BHP Billiton and Rio Tinto) on iron ore price increases, the industry will incur losses for the current year.
Mr Xu stated, in spite of the recovery of the domestic steel industry seen in the first quarter of 2010, the profit margins of the principle steel enterprises stood at just around three percent of sales during this period. Meanwhile, steel inventory levels have risen by 40 percent year on year. Once the industry accepts the same increase for iron ore price as Japan with the miners in question, the Chinese steel sector is bound to incur losses, he added.
Furthermore, Mr Xu stated he expects that the import iron ore price will exceed $200/mt in the spot market. He said that the current iron ore price is already at high levels, especially in consideration of the comparatively low freight rates. Iron ore prices are expected to reach $200/mt as soon as freight rates increase.