China’s steel mills could make a breakthrough in iron ore fundamentals in five years if they look in the right direction, such as increasing their stake in overseas iron ore operations, said Mysteel senior analyst Xu Xiangchun on February 1.
“China’s heavy reliance on imported iron ore is undeniable and not a problem in and of itself,” Xu said. “But he is concerned that the steel industry is constantly threatened by volatility in iron ore prices due to significant The degree relies on the four largest iron ore miners in the world and small investments in the mining sector, ”he added.
Thus, China should learn from its competitors in Japan and South Korea, whose domestic steel mills, although they relied entirely on imported iron ore for their consumption, have profited from their investments in overseas iron ore projects and securing hardware security.
The awkward situation facing Chinese steel mills at present is partly due to an underestimation of actual demand, that in 2005, China’s estimated demand for iron ore was 330 million tonnes lower than actual consumption, and for 2020. The difference between forecast and reality was even greater – 470 million tons, which, to some extent, led the Chinese steel mill to miss out on investment opportunities.
To get out of the hole, Chinese steel mills must accept a “worst-case scenario.”
“Chinese steel mills should not think about whether it makes sense to invest with high iron ore prices, but how to create a sustainable supply,” he said, acknowledging that there is a large dependence on iron ore imports from only two countries – Australia and Brazil is too risky.
China’s overseas iron ore investment has given the country access to 24 billion tons of iron ore resources, but the annual supply of iron ore is less than 200 million tons.
China’s iron ore market, however, is not only full of negative factors, some positive changes have occurred quite recently, for example, the demand for steel in the country has more or less stabilized, which means that the demand for iron ore has also peaked, and at the same time all continued overseas investment by Chinese enterprises in iron ore mining will significantly increase the supply of iron ore to China.
Once all pipelines are commissioned, China’s share of the iron ore mined at these facilities will be added by an additional 150 million tonnes /tonne, providing powerful leverage against the surge in iron ore prices.
Chinese companies can pursue their overseas investment in iron ore mining either by joining other partners in the project or relying solely on themselves, Xu suggested, although for large-scale investments in iron ore mining abroad, such as the Simandou iron ore project in Guinea. West Africa, financial and political support from the Chinese government will be critical to the smooth progress of such projects.
Shimandu is planning a $ 30 billion investment that will include the construction of not only production sites, but also related infrastructure, he added.
China imported 1.17 billion tons of iron ore in 2020, of which the share of iron ore from overseas mines invested by China was only 160 million tons, or about 13% of the total, as reported.