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Shocks for ore miners as steel demand drops

November 4, 2008 at 9:57 by Mario

The Australian mining sector may be forced to radically scale back iron ore production as demand for steel crumbles due to the global slowdown.
Only days after announcing a major cut in its iron ore production levels, Brazilian mining giant Companhia Vale de Rio Doce has withdrawn demands for price increases from Chinese steelmakers.
The chairman of Baosteel, China’s largest steelmaker, Xu Lejiang yesterday described Vale’s price demands as “bad timing when the global steel industry is in the throes of winter conditions”.
The slowing demand has already forced Vale to cut its annual iron ore production by 30 million tonnes.
This faltering demand for iron ore, which is used to make everything from sewing needles to skyscrapers, could have a very destabilising impact on the Australian miners that are saddled with huge debts or on the verge of running out of cash.
The China Iron & Steel Association warned the global slowdown has curbed demand for steel products, dampened prices and resulted in Chinese steel mills being unprofitable last month.
Mr Xu warned that China’s steel industry faces “a possible whole industry deficit in the fourth quarter” underlining the “serious imbalance in demand and supply”.
Vale chief executive Roger Agnelli said that some steel companies have slashed their demand by up to 40 per cent in recent months, which will in turn hurt iron ore producers.
Mr Agnelli said the global economic slowdown was “brutal” with commodity prices dropping swiftly in recent months.
Across the industrial sector demand for iron ore is down 20 per cent on average.
“There are some parts of the world where people don’t want to buy anything,” Mr Agnelli said.
“Nothing, nothing, nothing.”
Vale refused to say how long it will close some of its production plants and mines.
A spokesman of BHP Billiton said the miner will maintain its policy of investing across the economic cycle.
“We are maintaining production and remain committed to our investment program,” the spokesman said.
Last week Fortescue Metals announced plans to suspend a $2 billion expansion project for at least six months.
A spokesman for Rio Tinto refused to comment on its planned iron ore production levels.
But the miner is believed to be looking at its spending levels including plans to scale back some of its expensive aluminium production.

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