BEIJING, Jan. 19 -- The discovery of 5 billion tonnes of new iron ore reserves in 2009 could give China an edge during this year's benchmark price talks with foreign suppliers, China's Ministry of Land and Resources said.
However analysts dismissed claims that the discoveries will strengthen China's steel mills during annual iron ore negotiations, saying they will have no bearing on the outcome, seen as an increase of as much as 40 percent from 2009 levels.
A report on the ministry's website (www.mlr.gov.cn), citing an unnamed official, said the discoveries would help China "seize the initiative" as the negotiations approach.
The ministry said Chinese prospecting teams also discovered a almost 20 million tonnes of copper reserves, 255 tonnes of gold and 150 billion tonnes of coal over the year.
Zhang Hongtao, the ministry's chief engineer in charge of the China Geological Survey, said the discoveries would "definitely have a positive impact on the negotiations", according to a separate notice posted on the ministry's website on Monday.
Zhang claimed that 1 billion tonnes of proven ore reserves discovered in Jidong in northern China's Hebei province were close to the surface and easier to mine.
But analysts took a more realistic view of the impact on the course of benchmark price negotiations in 2010.
"The new discoveries don't even come into the equation at all in terms of giving them a stronger position from which to negotiate," said Paul Bartholomew, Australia manager with Steel Business Briefing.
Much of China's ore is too deep and very expensive to mine, and many of the new discoveries are unlikely to have any immediate impact on the country's total supplies.
A deposit in northeast China's Liaoning, discovered last June with total reserves of 3 billion tonnes, is believed to be at least a kilometre deep and none of China's big steel firms has shown much interest in developing it so far.
Even if the new mines prove feasible, they still require as much as ten years of development before they begin delivering iron ore to local mills.
And it remains unlikely the big mills will buy Chinese ore, with leading producer Baosteel (600019.SS: Quote) -- 100 percent dependent on foreign suppliers -- repeatedly stating it has no interest in tapping expensive and lower-quality domestic reserves.
"China's mines are generally too deep and uneconomical, there are few open-cast mines and exploration is expensive," said Ma Zhongpu, senior analyst with the Umetal consultancy in Beijing.
China, the world's biggest steelmaker -- and at the mercy of dominant foreign miners Rio Tinto (RIO.AX: Quote), BHP Billiton (BHP.AX: Quote) of Australia and Vale (VALE5.SA: Quote) of Brazil -- has been striving to boost its self-sufficiency in iron ore through the development of domestic mines and the acquisition of overseas deposits, but total imports still surged to a record 627.8 million tonnes in 2009, 41.6 percent higher than the previous year.
Late last month, a little-known two-month old private outfit called Shunde Rixin had a short spell in the limelight after claiming it had bought a controlling stake in a cluster of large iron ore mines in Chile.
Company president Li Zihao said that 3 billion tonnes of iron ore were now at China's disposal, giving the country's steel mills another option in their efforts to diversify supply sources and ease their dependence on the big three foreign miners.
Little has been heard from Li or his project since, but the burst of excitement was part of a larger pattern, as miners, mills and the domestic media talk up the country's reserve estimates in order to persuade the big three -- in control of as much as 80 percent of the global iron ore market -- that China has plausible alternative suppliers.
China's third biggest steel producer, Wuhan Iron and Steel (600005.SS: Quote), also got in on the act last month, announcing it would become self-sufficient in iron ore within three to five years after a number of acquisitions in Australia, Brazil, Chile and Venezuela.
Analysts suggested most of the media spin behind China's new finds at home and abroad is not so much an attempt to scare the big miners and more a case of wishful thinking, and they are unlikely to give China's steel sector the additional clout it needs to influence global prices.
"I don't think the major iron ore producers will be losing any sleep at all," said Bartholomew.