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Analyst: Strong Chinese demand for Brazil iron ore to last just 5 more years

Brazil’s iron-ore exports to China will remain stable for five years but then a sharp slowdown in the Asian giant’s housing market will trigger a reduction in demand for steel, the managing director of the Beijing-based GaveKal Dragonomics consulting firm said.

Arthur Kroeber, a U.S. economist, said in a speech here Tuesday that China’s real-estate sector has already reached its peak and therefore Brazil “must find other growth mechanisms.”

Kroeber added that Brazil must be aware that the recent sharp rise in raw-material exports to China will come to an end and cannot pin its growth prospects on a boom period.

Driven over the past two decades by rural dwellers’ large-scale migration to the cities and urban residents’ desire to upgrade to more modern homes, China’s housing market may remain strong for some time but is eventually headed for a fall, the expert said.

He predicted that Chinese President Xi Jinping’s government will take steps to slow the pace of the downturn and maintain China’s construction industry afloat over the next five years, saying those policy actions also will keep demand for Brazilian steel stable.

China is the biggest market for iron-ore exports by mining giant Vale, Brazil’s second-largest company and the world’s biggest producer of that base metal, the main ingredient in steel-making.

“You have to be realistic. The demand for raw materials will never be the same,” Kroeber said, adding that “Brazil must seek out new opportunities and see where it can gain an advantage because the game is going to change completely.”

Brazil posted a $2.84 billion trade deficit in February, 33 percent wider than the same month of last year, due mainly to a sharp decline in exports to China, the Brazilian government said Monday.

Imports of Brazilian goods by that Asian country, a major market for Brazilian iron ore, soy and other raw materials, plunged 40.2 percent last month relative to February 2014.

As a result, the United States was Brazil’s top trading partner for the second straight month, a position that – prior to January – it had not occupied since 2009.
Source: EFE