Firstenergy Corp. (FE)

[mhlld]

Chinese Iron Ore Imports Set to Rebound

Rio Tinto's Walsh Says Chinese Iron Ore Imports Set to Rebound
July 2 (Bloomberg) -- Rio Tinto Group, the world's second- largest iron ore exporter, said Chinese imports of the commodity are set to rebound because of buoyant demand from steelmakers and declining inventories.

Iron ore imports to China, the world's biggest buyer of the mineral, fell in May to their lowest in three months after the government imposed an 8 percent duty. China has also been seeking to limit the number of companies importing the commodity.

``The word we're getting from steel mills and freight companies is that everybody sees'' the slowdown ``as a temporary correction,'' Sam Walsh, chief executive of Rio Tinto's iron ore business, said in an interview yesterday. ``The basic fundamentals of the iron ore market, and for steel, continue to be attractive.''

Surging demand from China, the world's largest steelmaker, led to a record 71.5 percent jump in iron ore prices in April. London-based Rio Tinto and rivals Cia. Vale do Rio Doce and BHP Billiton are spending a combined $8.5 billion expanding their mines, railroads and ports to meet demand.

``China's demand for iron ore continues to be strong and is expected to increase further in 2006,'' Tony Robson, an analyst at Global Mining Research in Sydney, said today. ``The licensing restrictions were targeted at the spot market, which is mainly Indian ore, and not directed at the big boys like Rio Tinto.''

China has doubled steel output in the last four years as it makes more cars, household appliances and buildings. Production will probably rise almost 20 percent to 322 million metric tons in 2005, according to the China Iron and Steel Association.

Stockpiles

The nation's iron ore imports fell to 21.8 million metric tons in May, from a record 24.3 million in April and 24.2 million in March, as steelmakers used inventories because of the new tax.

Chinese importers will run down 30 million tons of iron ore stockpiles in a month, Noble Group Ltd., which handles 10 percent of the country's shipments of the commodity, said June 22.

``Traders who were fearful of their ability to trade brought in quantities of iron ore from India and elsewhere and that created a stock buildup,'' Walsh said via telephone from Perth. ``We and many others are seeing this as a correction.''

China's iron ore imports may rise 15 percent this year to 240 million tons, the China Iron and Steel Association said on April 11. That may help prices rise a further 5 percent from April 2006, Merrill Lynch & Co said this week.

``This is a tight market for the foreseeable future,'' Brendan Harris, an analyst at Macquarie Bank Ltd. in Sydney, said yesterday. ``It's a good industry to be in.''

Rio Tinto said yesterday it agreed to take a 50 percent stake in the A$530 million ($402 million) Hope Downs iron ore mine in the Pilbara region of Western Australia. Rio Tinto gets 20 percent of its profit from iron ore.



To contact the reporter on this story:
Tan Hwee Ann in Melbourne at [e-mail]

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