Steel producers should not be tempted to invest in long-term iron ore projects, an analyst has warned.

Philip Tomlinson, managing consultant of CRU Strategies, told the CRU 17th World Steel Conference in Rome, Italy that investing in an iron ore mine was dangerous, especially if the project takes more than five years to come on stream.

He told delegates that there were plenty of projects set to come on stream mid-term which would help reduce the price of iron ore. If a steel company decided to invest in n iron ore mine which does not open for another five years, then there was a risk of not getting its money back.

In a presentation titled Squeezed by raw materials: What should steel companies do? he advised any steel companies that did get involved in iron ore projects should do so in quick projects, such as expansions, and to bring it on stream within five years.

He believed ore prices will remain volatile until at least 2014 while the Chinese growth continues. He described the period 2014-2020 as the ‘zone of uncertainty’ with a lot of mining projects coming on-stream. He said there was plenty of iron ore still to be mined and these two factors would lead to a drop in ore prices.

Summing up, he repeated that steel companies should not get too involved in mining.

He said: Mining is an entirely different business to steel, with different skill sets and different profiles. Do steel companies really want to get into it?”