Growth of steel industry in China to make Chinese steel companies seek the company of iron ore mine that can provide cheaper prices. To get the price of iron ore is cheaper Chinese steel companies of trying to find domestic iron ore producers that can provide iron ore price is cheaper.

China’s appetite for low-cost iron ore has surged as domestic mines there close, leading Australian government forecaster ABARE to boost predictions for the nation’s iron ore exports.

Providing a base for continued iron ore growth in Australia, China accounted for 78 per cent of the nation’s iron ore exports in the March quarter, up from just over half in the past financial year, ABARE said yesterday.

Falling spot prices are believed to have shut down about 100 million tonnes of China’s high-cost iron ore production, which is the equivalent of almost a third of Australia’s total exports.

The big drop in Chinese domestic production has meant China has more than taken up iron ore demand slack that had been expected in the wake of slumping Japanese and Korean steel production.

China is expected to increase the proportion of iron ore that it imports to 70 per cent, from 50 per cent previously.

China’s largest iron ore importer, Sinosteel, said it had acted as a broker to import nearly 10million tonnes of iron ore in the first five months of the year, almost triple the level of a year earlier.

The increase confirms the structural shift in China’s iron ore consumption towards seaborne trade as Chinese mines close down, unable to compete on the combination of quality and price with Australian and Brazilian producers.

“It was mainly because small and medium-sized steel mills in China have turned away from domestic ore to imported ore,” an unnamed Sinosteel executive told the Shanghai Securities Journal.

“As imported ore is more competitive in price, domestic steel mills’ reliance on imports this year may rise to 70 per cent from about 50 previously.”

Zhang Xinyun, a small trader from Harbin in northwest China, said many mines in his region had closed.

“They can’t compete with the price of imported iron ores,” Mr Zhang said. “They are also being punished by the market. When the price was high, many domestic miners mix stones into ores.”

Fortescue Metals Group executive director Russell Scrimshaw said he did not know exact numbers but it was obvious from the queues at Chinese ports that iron ore imports were rising.

Rio Tinto said the trend accorded with its observations.

While other global producers cut back in late 2008 and early this year, BHP Billiton continued to run its iron ore operations at full capacity despite deferrals of contracted shipments. BHP vowed to sell as much as it could on to the lower-priced spot markets so long as it made a profit.

The stance forced Rio Tinto — an even lower-cost producer than BHP — to do the same to compete.

In its June-quarter report, ABARE boosted its forecast for 2009 Chinese iron ore imports by 17 per cent to 527 million tonnes and its 2010 forecast by 6 per cent to 529 million tonnes.

It raised expectations for 2009 Australian iron ore exports by 5 per cent to 333 million tonnes, up from 309 million tonnes last year.

The increase from 2009 is largely because of the expected lift in Fortescue’s production as it ramps up its mines in Western Australia’s Pilbara region.

Find More Other News : Iron Ore, Mine Trade & Market, steel industry