* Up to 15 pct of China's iron ore mines stay shut
* Iron ore prices up more than 80 pct since Sept
* Steel mills look for more supply from abroad
By Manolo Serapio Jr and Ruby Lian
SINGAPORE/SHANGHAI, Jan 11 (Reuters) - China's harshest
winter in nearly three decades has hit iron ore output and
driven up prices just as demand from steel mills revives in a
resurgent economy. Imports are at record levels.
Tighter domestic supply in the world's top steel producer
could mean global iron ore prices will continue to rise - they
are already up more than 80 percent since September - a boon to
mining giants such as Rio Tinto and BHP
Billiton after a slump in prices last year
forced them to re-think their expansion plans.
Temperatures in China have plunged to their lowest in 28
years, with frozen coastal waters, cancelled flights and closed
highways. Once a thaw arrives, however, prices
will likely come under pressure as Chinese miners return to full
Up to 15 percent of China's iron ore mines, especially those
located in the northern region where it has been coldest, remain
shut, said Henry Liu, head of commodity research at Mirae Asset
Securities in Hong Kong. Many small mines and processing plants
closed last year after iron ore prices slid to 3-year lows and
made China's more costly producers unprofitable.
When prices rallied last month, it was already too cold for
them to resume production.
"They would want to return to production, but they can't
because of the weather," Liu said. "We estimate 10-15 percent of
these local mines are still closed because of the cold weather."
The harsh weather conditions have halved utilisation rates
at private mines and processing plants in some areas, according
to a survey by consultancy Mysteel published on Dec. 28.
China, the world's biggest iron ore producer, imported a
record 70.94 million tonnes in December, nearly 2 million tonnes
above the previous record. Imports will again be high this month
if the weather remains cold, analysts said.
"If the domestic supply of iron ore in China remains
constrained, iron ore import prices will stay at high levels,"
said Zhang Yong, an analyst with Mysteel.
The price rally could be further fuelled as a cyclone
threatens Australia's Pilbara producing region and its export
facility at Port Hedland. Australia is China's main iron ore
supplier. On top of that, shipments from Brazil have been hit by
China typically produced 120-130 million tonnes of low-grade
iron ore each month last year, and imported around 60 million
tonnes of high-grade material. Output traditionally falls in
December-February. In January last year, it tumbled to around 72
Utilisation rates of all surveyed mines in northeast China
were at just 61 percent at end-December, according to Mysteel,
lower than the national average of 68 percent.
SEEKING CHEAPER ORE
The benchmark price for iron ore delivered to China has climbed 37 percent from early last month to
$158.50 a tonne this week, and is up 83 percent since September.
The rise in iron ore prices from suppliers Australia and
Brazil has prompted some Chinese steelmakers to buy cargoes from
smaller exporters such as Malaysia and Indonesia to trim their
costs, said one physical ore trader in Shanghai.
"For the same grade, cargoes from Malaysia and Indonesia are
probably $10-$15 cheaper than those from Australia and Brazil,
although the quality is not always reliable," he said.
Iran is another source of cheaper iron ore for China,
although prices there have also surged given the brisk demand,
said a Chinese trader who sells Iranian iron ore.
"Steel mills are always looking for cheaper non-mainstream
iron ore sources, but the problem is there are no large
quantities available and they're high on impurities, so may not
really help mills lower their production costs," said an
official who buys iron ore for a small steelmaker in eastern
"The only way out is for steel prices to rise, to transfer
the soaring costs, but this isn't happening due to the weak
winter consumption season."
China's steel prices, based on Shanghai rebar futures
, have risen by around a quarter from September's lows -
a much smaller increase than in the price of iron ore.