Home > Market change > China to invest in iron ore mines abroad

China to invest in iron ore mines abroad

February 24, 2011

“China plans an aggressive expansion of its iron-ore holdings overseas to increase the share of its imports from China-invested mines, an influential industry official said Wednesday. China Iron & Steel Association Vice Chairman Luo Bingsheng told an industry conference Wednesday that China would seek to derive 40% of ore imports from Chinese-invested sources by 2015.

It is unclear what percentage of China’s iron-ore imports currently come from mines part-owned by Chinese companies. Mr. Luo didn’t give a figure. But the comments from Mr. Luo, who is to retire from the association this week, underscore the desire of China—which produces about half of the world’s steel—to reduce its import bill for iron ore, a feedstock that it paid $80 billion to import last year.”

Source: Wall Street Journal, February 23 2011

Observations:

  • China produces about half of the world’s steel, but produces only 15% of the world’s iron ore (in iron content). The remaining ore required for steelmaking is imported, mainly from Australia, Brazil, and India.
  • China’s share in mining M&A rose from 22% to 25% ($12bln) last year according to Ernst & Young’s latest report. In the last years more than half of China’s acquisitions took place in Australia.

Implications:

  • BHP Billiton, Rio Tinto and Vale together control some 75% of the global seaborne iron ore trade. If China wants to derive 40% of ore imports from Chinese-owned sources by 2015 it will either have to increase its stake in the three major iron ore producers or erode their share by investing in other growing companies.
  • To strengthen the position in iron ore imports the Chinese steel makers, backed by the government via development funds and banks, will have to look beyond Australia to Africa and Latin America. The industry in Australia is rather consolidated, while new deposits developed in Africa might enable China to secure long term supplies.

©2011 | Wilfred Visser | thebusinessofmining.com

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  1. March 12, 2011 at 2:31 pm

    China is a really powerful country. And after they invest a huge amount into iron ore mines – they will be more effective in trading and more valuable to foreign partners…

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