Mr Xu Lejiang chairman of Baosteel Group Corp speaks during an interview in Shanghai. Mr Lejiang said that the iron ore market has risen to “bubble” levels that will burst as new mines create oversupply of the steelmaking raw material.

Mr Xu said that “There is a bubble in this market, many are gambling without saying when prices would drop. “Everyone who has money is rushing in to invest in iron ore.”
The Australian Bureau of Agricultural and Resource Economics and Sciences has forecast that Vale SA, Rio Tinto Group and BHP Billiton Ltd the three biggest suppliers, plan to spend USD 45 billion on mines. Global exports of iron ore may gain 28% to 1.4 billion tonnes by 2016.

Mr Xu said that “The reason the big three keep spending is that they probably think growth in India, Brazil, Russia and South Africa will be sustained, and also because they believe the return on their input would beat those blind investments” by smaller rivals.”

He added that the biggest losers from the new mines may be the speculative companies that haven’t yet started production and their investors.

Mr Xu further said that “Some investors are simply making money by trading the iron ore projects before seeing actual output. Iron ore prices will definitely fall at some point because the supply-demand situation will have a turnaround.”

Demand from steelmakers in China spurred an almost threefold jump in iron ore prices since 2008, driving a surge in producers' valuations. The Bloomberg Global Iron Ore Mining Index of 30 iron ore companies have surged four-fold since 2008.

(Sourced from Bloomberg)