GLOBAL demand for iron ore is expected to reach 2.6-billion tons in the next seven years, with China poised to remain the biggest consumer of the steel-making ingredient, Diedrik Tas, partner at commodities search firm McKinsey & Co, told attendees at the Mining Indaba in Cape Town on Monday.

Prices were also to remain high, Mr Tas said, but he warned that this would not be due to increased demand, but rather a function of rising operating costs.

Iron-ore prices are closely linked to growth in the steel markets. Over the past year, prices have wavered as the slowdown in China’s economic growth led to lower demand for the metal.

In Europe, steel makers were also suffering from a margin squeeze as a result of the higher prices, Mr Tas said.

He added that cost inflation would drive prices. "There’s strong growth in iron ore expected in 2020. Thereafter it is expected to sold down," he said.

Current global supply is about 1.8-billion tons, from an installed capacity of 2.2-billion tons.

"Installed capacity is expected to rise to 2.8-billion tons, with 810-million tons of that capacity rehired," Mr Tas said.

Over the past year, iron-ore prices have halved since trading around record levels above $200/ton at the peak of the resources super-cycle of the past decade.

For marginal iron-ore producers, profit margins were, however, expected to be constrained as a result of rising mine inflation, Mr Tas said.

Since 2008, the rolling financial crisis has taken its toll on global growth expectations, Rick Daverell, head of commodities research at Credit Suisse, told the indaba. “What we know is that we have gone back to 2006 level.”

Mr Daverell was, however, bullish about the outlook for commodity prices.

“The acute phase of the global financial crisis is more behind us,” he said, referring to the negative data coming out of the eurozone and the US. “The key thing is tha over the past nine months nothing has happened.”

Mr Daverell said bulk commodities were expected to get support from a recovery in the US construction sector and from China’s infrastructure drive.

“China has done what it generally does best — that is, to pump capital into its infrastructure spend,” he said.

The 19th annual Mining Indaba takes place in Cape Town this week. More than 7,500 delegates from the world’s top mining houses and officials from mining jurisdictions will reflect on events of the past year, which saw the bulk of commodity prices slow down as growth in China tapered.