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PERTH (Reuters) - China's steel demand is expected to fall 1.9 percent this year, pressuring iron ore prices as production of the key steel-making ingredient increases, the head of a Chinese think tank said on Thursday.
Steel demand in China, the world's largest consumer and producer, is seen easing to 660 million tonnes, said Li Xinchuang, president of the China Metallurgical Industry Planning and Research Institute.
The drop comes as Beijing applies tough reforms to cut surplus production capacity.
"We think China's steel consumption will decrease step by step by step -- maybe increase some years, like last year. That's our situation," Li, who is also vice chairman of the China Iron and Steel Association, told an industry conference in Perth.
He said iron ore import demand in China had inched up 0.7 percent to 1.1 billion tonnes in 2016, with the country's dependence on imports at 87 percent of total demand.
The institute sees seaborne iron ore supply increasing by about 50 million tonnes this year, which is about 10 million tonnes more than forecast by world No. 2 iron ore miner Rio Tinto (RIO.AX)(RIO.L).
As a result, the institute predicts iron ore prices will range between $55 and $90 a tonne in 2017, averaging around $65.
"Unfortunately, with the fast increase of iron ore prices, China iron ore production increased 15 percent in the first two months," Li said.
Iron ore MYSTL-RIIOI-IMP is currently trading around $77.60, up nearly 40 percent from a year ago.
"What's the future? We think the oversupply of global iron ore is very serious for the long term," he said, but he added that China would still be heavily dependent on iron ore imports in the long term.
Reporting by Aaron Bunch; Writing by Sonali Paul; Editing by Randy Fabi