China, the world’s biggest buyer of iron ore, will soak up excess global seaborne supplies of the steel-making material as it sustains demand even amid an economic downturn, according to Vale SA. (VALE5)

China’s ore imports in 2015 will rise further from a record 900 million metric tons this year, Claudio Alves, global director of marketing and sales at the Rio de Janeiro-based company, said in an interview. The country will consume most of the 80 million to 100 million tons of supply that miners around the world may add to the seaborne trade next year, he said.

The prospect of rising imports highlights China’s demand for steel at a time of slower economic expansion. Vale, along with other major producers including BHP Billiton Ltd. (BHP), Rio Tinto Group and Fortescue Metals Group Ltd., have invested billions of dollars to expand output, betting on sustained growth from the country.

“Demand in China will continue to be healthy,” Alves said yesterday in Dalian, a major port city in the country’s northeast. “China still has a long way to go in terms of urbanization. It can last another 10 years before reaching a peak.”

The country’s crude steel production may rise to a record 820 million tons this year, from 779 million tons in 2013, he said. Output will increase 3 percent next year, he added.

As developed mining projects brought about 140 million tons of additional seaborne supply onto the market this year, prices for ore with 62 percent content delivered to the port of Qingdao in China slumped 41 percent to $79.90 a dry ton, according to Metal Bulletin Ltd.

Global Surplus

The global surplus will more than triple to 163 million tons in 2015 from 52 million tons this year, Goldman Sachs Group Inc. said in a Sept. 10 report. The glut will grow to 245 million tons in 2016, 295 million tons in 2017 and 334 million tons in 2018. The government commodity forecaster in Australia, the world’s largest producer, this week cut its price forecast for supplies from the country to $94 a ton this year amid surging production.

In the short-term, prices may be firmer over the next three months and climb to as much as $100 by the end of the year if record high inventories at Chinese ports can be whittled down by mills restocking before winter, Alves said.

Some Chinese steel traders with heavy debt are struggling to repay it. China is said to have removed Sinosteel Corp. President Jia Baojun from his post, according to people familiar with the situation, after the state-owned steel trader said it’s facing financial difficulties. A steel-trading unit of China’s Anhui Wanjiang Logistics Group has defaulted on loans, according to an exchange filing Sept. 23. The company cited banks’ unwillingness to extend loans to the steel industry as the reason for the nonpayment.

Turbulent Period

“This is a very turbulent period,” Alves said. “But if you look at the Chinese mills right now, they are enjoying better margins now than they were at the beginning of this year. So the problem will be limited to those traders, especially those with high leverage.”

China imported 74.9 million tons of iron ore in August, down 9 percent from July, as steel mills reduced raw material stockpiles and operating rates, according to official customs data. Total iron ore imports are up about 17 percent this year.

Vale is on course to raise its production to about 450 million tons in 2018 from about 300 million tons last year, Alves said. The company’s average production cost in Brazil is about $22 a ton, which could fall to $18 after mine expansions, he said. The company may trim as much as $6 off transportation costs to China if its ports allow very large ore carriers to berth, he said.