MYSTEEL: A breakthrough likely in iron ore in five years
“China’s heavy reliance on imported iron ore is an undeniable fact, and it is not an issue itself,” Xu stated, “but it is worrying to see that the steel industry has been under consistent threat of iron ore price volatility due to its too heavily leaning on the world’s top four iron ore miners and little investment in the upstream sector,” he added.
China, thus, should learn from its rivals in Japan and South
Korea whose domestic steel mills, despite having been totally relying on
imported iron ore for their consumption, have been enjoying the returns from
their investments in the overseas iron ore mining projects and securing iron
ore supplies from these operations at the same time, Xu pointed out.
The awkward situation that the Chinese steel mills are
facing at present is partially due to the underestimation of the actual demand,
Xu highlighted, noting that for 2005, China’s estimation on its iron ore demand
was 330 million tonnes below the actual consumption, and for 2020, the
difference between the projection and the reality was even wider at 470 million
tonnes, which, to some extent, has led to the Chinese steel mill’s missing out
on investment opportunities.
To climb out of the hole, the Chinese steel mills need to adopt
“the worst-case scenario” mindset, according to Xu.
“What the Chinese steel mills should be considering is not
about whether it makes sense to invest when iron ore prices are high, but about
how to build up a sustainable supply,” he pointed out, admitting that the heavy
reliance on iron ore imports from only two countries – Australia and Brazil –
is just too risky.
China’s overseas iron ore investment has granted the country
the access to 24 billion tonnes
of iron ore resources, but the yearly iron ore supply is less than 200 million
tonnes, Xu pointed out.
China’s iron ore market, however, is not full of just
negative factors, some positive development has emerged too recently, such as
that the country’s steel demand has more or less plateaued, which means the
iron ore demand has peaked too, and at the same time, all the ongoing overseas
iron ore investments by the Chinese enterprises will substantially increase iron
ore supply to China, Xu added.
With all the projects in the pipelines commissioned, China’s
share of iron ore from these operations will be added by another 150 million
tonnes/tonne, which will be a powerful leverage against the iron ore price
surge.
The Chinese companies can realize their overseas iron ore investments
either via joining the other partners in a project or solely relying on
themselves, Xu suggested, though for large-scale iron ore investments abroad
such as the Simandou iron ore project in Guinea, West Africa, the support from
the Chinese government financially and via policies will be crucial for the smooth
progress of such projects.
Simandou is with an estimated investment of $30 billion and
it will involve the construction of not only the mining sites but also the related
infrastructure facilities, he added.
China imported 1.17 billion tonnes of iron ore in 2020,
among which the share of iron ore from the China-invested overseas mines
amounted to merely 160 million tonnes or just about 13% of the total, as
reported.
Written by Hongmei Li, li.hongmei@mysteel.com.
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