Chinese steelmakers urged to step up raw materials security efforts

The Chinese steel industry's reliance on imported iron ore and manganese ore has consistently exceeded 80%, with nickel ore import dependence surpassing 90% and chrome ore approaching near-total reliance at close to 100%, while overseas equity mines contribute less than 10% of total supply, as reported.

Given that raw materials procurement accounts for about 80% of total production costs for steelmakers, the strong bargaining power of overseas suppliers has weighed heavily on domestic mills' profitability, according to the report.

In recent years, some large Chinese steelmakers have taken proactive steps to strengthen their raw material supply chains, the report pointed out.

For example, China's top steel producer Baowu Group has established an iron ore carbon footprint tracking system, through which it prioritises the procurement of high-grade iron ore such as Australian Pilbara iron ore, of which the carbon intensity is less than 1.8 tonnes of CO2 per tonne of ore.

Besides, through its 'intelligent' ore blending base by the Yangtze River in East China's Zhenjiang city, Baowu has built an integrated system that shortens the average iron ore delivery time to surrounding mills by 40% and improves inventory turnover by 30%, as reported.

On the other hand, Shagang Group – China's leading electric-arc-furance (EAF) steel producer based in East China's Jiangsu province – has established 12 scrap processing centres in the Yangtze River Delta, backed by long-term agreements with vehicle dismantling companies and building demolition firms. This strategic move has ensured stable scrap deliveries to Shagang even during nationwide supply shortages and supported its high EAF operating rates.

While these cases offer valuable references, the broader challenge remains, the report warns. With global commodity supply risks intensifying amid geopolitical tensions and tightening trade policies, Chinese steelmakers must systematically reinforce their raw material security across multiple fronts, it proposes.

A key priority is to formulate and regularly update raw material security plans tailored to each company's operation. Such plans should cover supply sources, transport routes, inventory management and cost control, it suggests. They should also take into account both current supply conditions and future trends for major inputs including iron ore, coal, coke, alloys and scrap.

Quantitative assessment of raw material security is equally important. Companies can establish evaluation systems that measure overall competitiveness alongside product-specific performance, covering both management capabilities and operational execution. This allows steelmakers to benchmark against peers and identify areas for improvement, CMN argues.

More importantly, steelmakers need to reduce raw material procurement costs through multiple channels. Steel companies can bring new and competitive suppliers to boost market competition, while multi-site groups or regional companies may consolidate their purchasing needs to strengthen bargaining power and adjust procurement rhythms flexibly with lean inventories to hedge against price volatility, according to the report.

Written by Anthea Shi, shihui@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com