China to stay iron-hungry, widen supply base - GS

China's ravenous appetite for iron ore will continue for years to come as development spreads across its territory, Goldman Sachs commodity analyst Paul Gray said on Tuesday.

Commodities markets are sharply focused on Chinese demand for raw materials, as the populous Asian giant's economy was one of the few to remain in growth throughout the global financial crisis.

"We remain positive on the outlook for iron ore prices and certainly volumes," Gray said, in a presentation at the Exposibram Brazilian mining conference taking place this week in Brazil's main mining state, Minas Gerais.

He said China iron ore inventories were not excessively high. Some analysts had recently been concerned that China's large iron ore purchases would bloat its stocks and stifle demand in the future.

"The development of the interior of China has got a long way to go. I think there are several decades of growth to go there," he said of the Asian giant which imported 444 million tonnes of iron ore in 2008, mostly from Australia, Brazil and India.

Gray said that China, which accounted for about 70 percent of seaborne iron ore trade and consumed 30 to 40 percent of global nonferrous metal output, would continue to seek a more diversified supply base to give it more control over prices.

China has already been investing to stimulate iron ore production in areas away from its main suppliers to swing the demand and supply balance in its favor and give it more clout in negotiating prices in annually revised supply contracts.

"There is no doubt China will continue its policy of acquiring overseas assets and that will certainly include iron ore," he said, adding China was likely to venture into areas perceived as higher risk, such as Africa and parts of Central Asia.

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