(Yicai Global) April 28 -- China is to bolster the exploration and extraction of iron ore both at home and abroad to ensure adequate supply for the country’s steel mills’ voracious appetite for the essential raw material and to keep a lid on runaway prices, according to a senior member of an industry body.

China, already the third-largest producer of iron ore in the world, is to further develop its own production capacity in the face of increasing instability in supply and pricing from abroad, Qu Xiuli, deputy head of China Iron and Steel Association, said yesterday.

The Platts 62 Percent Iron Ore Index, a pricing benchmark, reached USD193.65 yesterday, a record high, largely caused by choked supply from India, one of the world’s key producers, as the country is overcome by a devastating wave of the Covid-19 pandemic.

China, the world’s biggest iron ore consumer, imported 44.8 million tons of iron ore from India last year, a 90 percent surge from 2019 and the highest level in nine years.

Global steel pricing is going to be affected by India’s pandemic crisis as the Southeast Asian country exports a huge amount of steel materials to Europe and the US, Wang Yangwen, manager of iron ore indexes at S&P Global Platts, told Yicai Global. Steel production may even drop in May and June due to the India bottleneck, she added.

However, iron ore pricing is less likely to be affected as India mainly exports low-grade iron ore, while China, the US and Europe need medium to high-grade ones. The inventories of iron ores in India’s ports also remain very high right now, she added.

China’s output of crude steel jumped 15.6 percent in the first quarter year on year, yet its steel inventories have fallen since the start of the second quarter. This is a sign of strong demand for steel both at home and abroad due to worldwide macroeconomic recovery, Wang said.

China’s steel mills are hiking output, driving up demand for iron ore, amid growing demand for exports and the huge profits to be made as the price of crude steel soars. The profit margin per ton of crude steel is now between USD130 and USD160.

The momentum of ore prices will remain strong in the second quarter, Wang said. Supply is still tight due to a seasonal pause in production in Australia and Brazil. Brazilian mining giant’s output in the first quarter was 19.5 percent less than the previous quarter as the humidity in the mines climbed above average.

Supply tensions should start to ease next month, Wang added.

Editors: Liao Shumin, Kim Taylor