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China determined to break the grip of the three major global iron ore miners

Monday, July 25th 2011 - 21:01 UTC
Full article 3 comments
Li Xinchuang, deputy secretary-general of China Iron & Steel Association Li Xinchuang, deputy secretary-general of China Iron & Steel Association

China, the world's largest steelmaker and iron ore consumer, has set a target of dramatically increasing ore imports from Chinese-invested resources in the steel industry's 12th Five-Year Plan (2011-2015), an industry official said.

Iron ore imports from Australia, Brazil and India accounted for 62.3% in 2010

Li Xinchuang, deputy secretary-general of China Iron & Steel Association, told China Daily that the country will only be able to break the grip of the three major global miners, Brazil’s Vale SA, UK-Australian Rio Tinto, and BHP Billiton, if it gets half of its overseas ore requirements from Chinese-invested sources.

“China currently owns less than 10% of imported iron ore. We should seek 50% of ore from Chinese-invested overseas resources in the next five to 10 years,” he said.

Li's remarks underscored the ambition of Chinese companies to secure steady supplies of ore globally.

Luo Bingsheng, deputy Party secretary of the association, said earlier that China has overseas mining rights capable of producing 150 million tons of ore annually, but most of the mines have yet to start production.

He accused the major global mining companies of taking advantage of supply falling short of demand to set prices at unreasonably high levels, squeezing profits from Chinese steel mills.

Last year, about 60 million tons of imported iron ore came from mines that had Chinese investment, the association said. China has been enthusiastically seeking ore resources overseas in recent years to reduce its reliance on the big global miners.

The country's biggest steelmakers, including Baosteel, Wuhan Iron & Steel Group and Anshan Iron& Steel Group, have acquired or invested in overseas mines.

Wuhan Steel has set a goal of being self-sufficient in ore supplies by 2015. Sichuan Hanlong made a recent bid for an iron ore project with identified reserves of 2.8 billion tons in West Africa.

Hanlong, a private conglomerate, last week offered 1.3 billion dollars in cash to Australia-listed Sundance Resources Ltd to gain control of its ore project in West Africa. The project is expected to start production in 2014, with annual production of 50 million tons, according to a company statement.

Liu Han, chairman of Hanlong, told China Daily that West Africa is emerging as a key region, as investment in Australia and Brazil faces a number of challenges.

“Australia and Brazil both have great resources, but they don't provide many opportunities for Chinese investors due to rising cost pressures and policy barriers. Furthermore, most of the resources and the attached infrastructure are controlled by the largest mine companies,” he said.

Despite the fact that it will require a huge amount of investment to build railways and ports in Africa, China needs to diversify its ore supplies to break the monopoly of the global Big Three, Zhang Lin, an analyst with Beijing-based Lange Steel Research Information Centre, said.

China imported 334 million tons of iron ore in the first six months of this year, up 8% over the year. The imports cost 53.78 billion, up 54% over the year.

According to data from the association, the average price of steel products rose 14.8% from January to May compared with a year ago, while the price for the raw material - imported ore - surged 47.8% over the same period.

The average profit ratio of the domestic steel industry from January to May was just 2.91%, far behind the national industrial average rate of 6%.

The market rate for Australian ore was steady at 179-181 dollars a ton with freight on Friday, Chinese consultancy Umetal said, up 10 dollars/ton from the May average price. A recent report released by consultants Wood Mackenzie said ore prices will likely remain above 150 dollars a ton until at least 2015.

Beijing has plans to build 36 million units of cheaper housing by 2020. Li also said China's steel production could hit a new record of 700 million tons as construction starts on 10 million social units.

 

Top Comments

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  • LWCata

    Aaahh, the “12th Five-year Plan” for steel. 60 years of tenacious climbing to become the number one user, producer, and repository, for 'steel'. A significant achievement, considering the next phase which is to build a significant 'deep-water navy' in the next 25 years.

    That's the thing about centralized government; planning, planning, planning. That's also what makes China attractive to foreign capitalists, who look at China planning things for the next 50 years and they look at America, and can't plan past the next election. Make no mistake; free elections are not the instrument for “long-term” capital formation.

    They may talk a 'democratic game', but there is no question that they look for long-term gains from the most repressive regimes in the world, and under that venue, China is not such a bad place to do business, eh?

    The imbalance of the US, having 5% of the world population and using 20% of the worlds resources, is putting both economic and military(AFRICOM) pressure on the US economy. Both in terms of labor and 'finished goods'; of those made with steel being the most lucrative.

    China is hoarding steel because it knows that at some point the Americans will have no choice but to confront their resource imbalance, and when that happens, it will take steel to address 'the issue'.

    My father's time was one of “iron men and wooden ships”, now we have “iron ships and wooden men”. A lesson not lost on a nation wishing to win the 21st Century.

    Jul 26th, 2011 - 02:01 pm 0
  • Rob the argentine

    China made the decision to become the first and strongest economy in the world. Every thing shows they will get it sooner than later.

    Jul 27th, 2011 - 06:19 am 0
  • GeoffWard2

    And all those South American nations that presently own their raw materials and make profit from selling them to China, should sit up and take note
    - China intends to buy the valuable real-estate - the geographical areas of the South American countries that have resources, strip them of the resources and then, probably, leave and/or 'sell back' the land, slag and spoil heaps.

    Ambiental renovation is not on the agenda as it reduces profits unnecessarily.

    SA politicians and big business will sell the land for immediate (public)/private gain, and will not be around when the derelict legacy problems require very long term public billions to redress the blighted land-conditions.

    Jul 27th, 2011 - 10:04 am 0
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