BS reported that India, a major supplier of steel making raw material iron ore to China, will have a major bearing on the Beijing strategy to loosen what is perceived to be the monopolistic pricing power of the Brazilian Vale and Anglo Australian BHP Billiton and Rio Tinto.
But, last budget raising the export duty on iron ore fines to 20% and bringing it on par with lumps and intermittent shipment dislocations from Karnataka could not be to Chinese liking. This is because China is trying to frame a 5 to 10 year strategy of reducing its uncomfortably large ore dependence on the big three mining groups.
In fact, their tight grip over the Chinese market has allowed them to usurp price setting power. Recent Indian moves discouraging exports, suspected at the prompting of local steel mills runs counter to the now evolving Chinese strategy of having a more diversified supply source than now.
As revealed so far, the strategy will be resting on two strands. First, attempts will be made to rapidly step up imports from Chinese owned offshore mines, particularly in Africa. Second, China will develop and strengthen imports sources beyond Australia and Brazil. That Vale, BHP and Rio have over 60% share of Chinese ore imports is in itself a measure of Beijing's uneasiness with the current state of affairs.
China will be counting less and less on Indian supplies of ore fines, which at one point were around 100 million tonnes a year, in its moves to break the grip of the world’s three major miners.
China should also be taking into account the ambition of iron ore, endowed Indonesia and Vietnam to emerge as steel producers of some size.
As all such things happen, China’s search for supply alternatives to Vale, BHP and Rio will automatically shrink.
Even then, China will bring into play economic diplomacy to seek full or part ownership of mines or equity investment linked to assured off take of mine production in south east Asian countries. While the country will ever remain on the lookout for iron ore resource acquisition opportunities across geographies, the focus will remain on West Africa.
MEPS consultancy has forecast an 8.5% rise in Chinese ore demand to 1.07 billion tonnes in 2011, when crude steel production will climb to 728 million tonnes. In the first half of 2011, the country’s ore imports rose 8% to 334 million tonnes, with buying cost rising a hefty 54% to USD 53.78 billion. China’s ore self reliance pursuit has not, however, dissuaded mineral majors from opening new mines. New investments find justification in forecasts that prices of ore with iron content of 62% will stay above USD 150 a tonne till at least 2015. Such prices are obviously assumed on the basis that Chinese import demand is not to be dimmed too soon.