SMM6: for a long time, China has been seeking to diversify its iron ore sources to control supply risks and price fluctuations. Because at present, 60% of China's iron ore sources come from Australia and about 20% from Brazil. As a country with the largest demand for iron and steel, 80% of China's iron ore resources come from abroad, which is an important reason for the sharp fluctuation of iron ore prices.
Less than 18 months after the dam disaster engulfed the market, iron ore prices soared as a result of disruptions in Itabila operations, and the diplomatic dispute between China and Australia raised concerns that iron ore could be the target of the dispute. Therefore, the expansion of iron ore to carry out autonomy has once again become the focus of attention.
At the two sessions this year, he Wenbo, member of the CPPCC National Committee and secretary of the party committee of the China Iron and Steel Association, suggested that the iron ore pricing mechanism needs to be adjusted urgently, reduce the comprehensive tax burden on iron ore enterprises, appropriately increase the supply of domestic iron ore, and actively promote the development of overseas resources. Other representatives also expressed similar views.
Foreign mine development
China has been diversifying its iron ore procurement for decades, and many companies have invested in overseas operations, including Sinosteel's Channar mining joint venture with Australia's Rio Tinto, Shougang's Marcona project in Peru and the recent Baowu Group's acquisition of a world-class iron ore Simandou project.
In the long run, China's development of overseas iron mines will reduce its dependence on imports. However, a large number of undeveloped iron ore deposits are often at high risk and the development cost is high. China cannot completely replace imported mines, but hopes to create more competition in the market.
Domestic option
In addition to looking abroad, China can also increase domestic production, although domestic iron ore mining may take a long time and the mining cost is high. Benchmark iron ore is up 8 per cent this year to about $99 a tonne. This has spurred domestic producers to increase production, but mines will be closed once prices fall to $70 or less. By contrast, Australia's major miners can produce a tonne of iron ore for less than $15.
Australia accounted for 64 per cent of Asian purchases in the first five months of this year, up from 62 per cent in the same period last year, while Brazil lost more market share. Overall, China is unlikely to break its dependence on Australian iron ore any time soon. Any disruption in trade between China and Australia will lead to a shortage of iron ore in China, and Australian iron ore will have nowhere to go, hurting the economies of both countries.
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