Bloomberg reported that Global iron ore capacity will rise faster than demand from China’s steel mills, the world’s biggest buyers of the raw material.

Mr Xu Lejiang chairman of Baosteel Group Corporation said that steel output growth has dropped to less than 5% a year from 20% between 2000 and 2006.

Iron ore has plunged 27% since February 20 when it reached a 16 month high of USD 158.90 meeting the common definition of a bear market. The world’s biggest iron ore producers including Rio Tinto Group and BHP Billiton Limited are planning USD 250 billion of new mines.

Mr Xu said that China’s slowing steel output growth comes as iron ore capacity expansions come on stream. While some smaller producers have deterred their expansion plans, we continue to see the top three are expanding as they believe they are more cost-competitive.

Steel prices in China have tumbled to the lowest level in more than 8 months amid production overcapacity and high inventories. Slower Chinese growth and Europe’s economic crisis have forced global steelmakers including ArcelorMittal and Tata Steel Limited to report quarterly losses.