China to supply 45% of steel raw materials itself by 2025

The target has been mentioned in the quality development guidance draft of the steel industry released by the country’s Ministry of Industry and Information Technology (MIIT) on the last working day of 2020, and the document will be under the public review and feedbacks until January 31, Mysteel Global noted.

To fulfil the target, MIIT proposed in the draft to “develop one or two overseas iron ore projects with cost effectiveness and global influence to raise the country’s self-sufficiency in the total imported iron ore to 20%”, as well as to “expand the domestic steel scrap supply to 300 million tonnes/year”.

“In the near term, this is rather challenging, as China’s domestic iron ore resources are rather limited, and at least 80% of the iron ore consumption has relied on imports, sometimes as much as 90%, mainly from Australia and Brazil,” Xu Xiangchun, Mysteel’s senior analyst admitted.

However, “the chances to increase the annual domestic steel scrap supply to about 300 million tonnes from over 200 million tonnes at present are much higher,” he added.

A Shanghai-based analyst agreed on the greater possibility of hitting the steel scrap supply target and it may also take shorter than by 2025 to fulfil the 300 million tonnes/year volume, as China is capable of generating about 260 million t/y of steel scrap as of now, according to him.

By 2019, China consumed 240 million tonnes of steel scrap in steelmaking, almost all sourced domestically, according to the latest available data.

In contrast, over January-November 2020, iron ore from Australia and Brazil accounted for 61% and 20% respectively of China’s total iron ore imports during the period, according to the data from China’s General Administration of Customs (GAC).

However hard it may be, the vulnerability of the Chinese steel mills in iron ore pricing due to its heavy reliance on the imported iron ore such as in 2020 may propel the domestic steel producers to struggle on or their steel margins will always be exposed to the risk of being compromised by the soaring iron ore prices, Xu added.

Last year especially in the second half, the robust demand saw Mysteel’s SEADEX 62% Fe Australian Fines skyrocket to a new high since mid-September 2011, touching $176.05/dmt CFR Qingdao as of Dec 21, or up $76/dmt from that for June 30, and China’s latest Customs data show that the imported iron ore price averaged Yuan 703/tonne ($108.5/t) for 2020, or up 7.6% on year. 

"Be a coincidence or not, in the long run, it makes perfect sense for China to raise its self-sufficiency in ferrous content raw materials, such as 45%, even if iron ore prices will no longer soar as last year,” Xu pointed out, acknowledging that in the past many years, some steel mills have successfully invested in a series of overseas iron ore projects and the others are exploring new investment opportunities just as the Simandou project.

In early June 2020 when SMB-Winning, an investment consortium of Shandong Weiqiao (Weiqiao), United Mining Supply (UMS), and Yantai Port Group from China, and Winning International Group (Winning) from Singapore deciding to co-develop the No.1 and No.2 tenures of the Simandou iron ore deposits in Guinea of West Africa, a project boasting over 2 billion tonnes of iron ore resources, as reported.

Later in 2020, the consortium has commenced the works to build a 600 km railway and a deep-water port as part of the project development, as shared by posts from Winning.

Xu commented this as a mixture of bitter sweetness. “On the one hand, this leads to the diversification of iron ore supplies from overseas, but such projects are with huge challenges lurking in the background, among which are overall the backward economy in Africa and the large scale and long construction period for such projects,” he elaborated.

Written by Victoria Zou, zyongja@mysteel.com