* China's output costs nearly triple those of big global
* Minmetals Luzhong Mining cuts output, among others-sources
* Iron ore below $100/tonne, near three-year low
By Manolo Serapio Jr and Ruby Lian
SINGAPORE/SHANGHAI, Sept 11 A slide in iron ore
prices to three-year lows is forcing many high-cost miners in
top consumer China to curb output, industry sources say, in a
move that could reduce the surplus in a market weighed down by
near record Chinese stocks.
China produces about 1 billion tonnes a year of iron ore and
buys 60 percent of the steelmaking raw material traded globally.
But a slowdown in its economic growth has undermined demand
assumptions and hit prices hard: iron ore fell last week to
$86.70 a tonne, a level unseen since October 2009.
Traders and major miners have been waiting for evidence that
China is cutting output to help rebalance supply with the
slowdown in demand from steel mills.
Chinese ore has a lower iron content compared with many
other countries so producers spend more to extract the mineral
compared with global miners such as Vale, Rio Tinto
and BHP Billiton . That means
they feel the pinch sooner when prices fall.
State-run, mid-sized firm Minmetals Luzhong Mining has cut
production to around 4,500 tonnes a day from around 5,000-6,000
tonnes, said a company official who declined to be named because
he was not authorised to speak to media.
"There is a growing number of domestic mines cutting
production, as steel mills are just not purchasing," the
official said. "We find it difficult to sell."
The official said many miners with an annual capacity of
200,000 to 300,000 tonnes in northeastern China, a major iron
ore mining region, have stopped production. Some in top steel
producing northern Hebei province have also halted mining, the
Chinese industry consultancy Umetal showed in a recent
survey that 38 percent of 50 mines with an annual capacity of
below 300,000 tonnes and processing plants polled had halted
production, most of them in Hebei province and in northeastern
Around 60-70 percent of private iron ore processing plants
in eastern Shandong and Hebei provinces have also stopped
operations, in dustry sources said.
"There is no market at all, except for our long-term
customers. We are also slowing down our processing rates now,"
said an official at a mine in Shandong that has an annual iron
ore output of 600,000 tonnes.
Raw iron ore in China has about 15 percent iron content on
average compared to around 60 percent for material found in
Australia and Brazil.
That makes China's production cost between $110 and $140 per
tonne compared to about $40-$50 a tonne in the world's top two
Iron ore with 62 percent iron content , the
industry benchmark, bounced back from last week's lows to $95 a
tonne on Monday, but it is still down by nearly a third from
China's iron ore output dropped by 10 million tonnes to 115
million tonnes in July from June, b efore rising by a modest 1
million tonnes in August.
Production cuts may take time to have an impact on the
market because iron ore stocks are relatively high in China.
Inventories of imported iron ore at major ports are around
97 million tonnes , near a record high of 101
million tonnes in February and equivalent to about 1-1/2 months
Globally, the market is likely to be in surplus supply of
around 4 million tonnes this year, said Jiro Iokibe, senior
analyst at Daiwa Capital Markets in Tokyo.
Iokibe expects the surplus to rise to 28 million tonnes in
2013 and to 53 million tonnes in 2014 due to growing capacity in
Australia and Brazil, planned on the basis of China's
"People have been investing in iron ore mines as almost an
essential thing, so we've got capacity available now based on an
assumption that China would keep growing at this rapid rate,"
said Peter Fish, managing director at British steel consultancy
MEPS. "I think that was a misjudgment."
So far, Vale, Rio Tinto and BHP Billiton have not curbed
output, although fourth-biggest miner Fortescue Metals Group
has said it would slash capital spending by a quarter
and scale back a planned increase in near-term output to 115
million tonnes from 150 million tonnes.
"The market requires some larger producers to pull back in
order to restore profitability," said Fairfax I.S. analyst John