China will look to create its own iron ore conglomerate

March 20, 2014

In an effort to reduce its dependence on imports of iron ore China will look to create a conglomerate of iron-ore mining giants that would be able to produce at least half of its domestic ore in 10 years, The Wall Street Journal reported.

The new group will be led by Ansteel Mining Co., a state-backed company that is the largest iron ore producer in the country. The new group would comprise six to eight mining businesses.

"This marks a strategy for our country to break our reliance on imported ore, and to support the transformation of our steel industry for international competitiveness," the Metallurgical Mines Association of China said in a statement. The association is working with the Ministry of Industry and Information Technology to push the project, which wouldn't be completed until around 2025, The Wall Street Journal reported.

China makes half of the world's steel, but depends on global mining giants for most of the iron ore it needs. Imports account for around 70 percent of the ore used in China's steel production, the association said.

China produces about 1.5 billion tons of ore a year — more than any other country. But its domestic industry is highly fragmented, and its ore is regarded as low-quality compared to that from major producers such as Australia and Brazil, while twice as costly to produce, analysts say.

In 2010, China was one of the key players in ending a term-pricing system that it said was stacked against buyers. Under that system, three global mining companies—Rio Tinto PLC, BHP Billiton Ltd. and Vale S.A.—met once or twice a year with Chinese state and industry representatives to set prices for most of the world's traded ore.

The shift to more transparent spot prices, however, has not yielded significant discounts. Even amid an ongoing economic slump, ore prices are still 9 higher than they were in March 2010, when the term-pricing system came to an end, and have been as much as 73 percent higher, according to data provider The Steel Index.

Consolidating the industry at home could help in giving China more sway over prices, but formidable obstacles remain.

More than half of China's ore production comes from small miners producing 3 million tons or less a year, he said.

China's iron ore is also more expensive to produce because it is buried deep, and has half or less the iron content than that in locations such as Australia's Pilbara region.


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