China plans to set up iron ore group to gain bargaining power (sources)

China plans to set up an iron ore purchasing group by the end of 2022 and build distribution centers at ports, as domestic industry players seek more bargaining power in negotiations trade deals on iron ore and security of supply, industry sources said on June 24.

This development, if it materializes, will be in line with broader industry plans to increase iron ore resources and self-sufficiency in the coming years, the sources say.

A negotiating team led by a major aluminum producer and participants including steelmakers and iron ore producers would act on behalf of other steel companies to negotiate future iron ore trade with the overseas market, sources said. close to the situation.

Team leaders could not be reached. One member of this buying group is a major iron ore trader, while others own iron ore mines abroad.

The main objective of forming this group, which includes state-owned companies with overseas mines and companies with domestic mines, is to be able to negotiate prices for large purchase volumes, opening possible options for a stable future supply of iron ore, according to local sources. .

Iron ore centers will be set up in the ports of Yingkou, Rizhao and Caofeidian in northern China, Zhanjiang in southern China and Ningbo in eastern China. These centers will be involved in the distribution and blending of ores and then transport to steel mills across China, according to a source.

China’s overseas iron ore mine – the Lobe Iron Ore Mine in Central Africa, with a future annual output of around 100 million tons – will mainly serve the Baowu Group, with an ore distribution center of iron that is expected to be built at the port of Ningbo, supplying Shanghai Baosteel, Nanjing Meisteel and Wuhan Wusteel, sources said.

Plans for integrated iron ore sourcing by the end of this year are in line with the industry and state body’s goals of gaining more power in price negotiations, officials said. sources.

The China Iron and Steel Industry Association, or CISA, in March 2021 proposed setting up a group company to secure overseas iron ore resources, a call made a year ago when Iron ore prices have spiked, impacting iron ore supply chains in the domestic steel sector.

In a February circular on accelerating the growth of China’s steel sector, China’s Ministry of Industry and Information Technology said it aims for the unified purchase of iron ore to have more a say in negotiating iron ore prices.

China is heavily dependent on Australia for its iron ore needs, and with trade tensions high between the two countries since 2020, the domestic industry is looking to find ways to secure supplies and weather price volatility. .

As China has tried to secure alternative supplies, its imports of iron ore from Australia have declined only slightly.

China’s iron ore imports from Australia in 2021 fell 2.7% from 2020, but Australia still accounted for more than 60% of China’s total imports in 2021, according to Chinese customs data. .

An industry watcher at a recent local webinar in China said that in an effort to remove heavy reliance on a single source, China has partnered with Mongolia, Russia, Brazil and Kazakhstan to iron ore supply, but this group is too broad, so there is a need to integrate the purchase of iron ore and gain a supply advantage.

Various reactions
Industry players in China have varied views on forming a group focused on collective price bargaining, with some noting that price stability would not be the only reason for making decisions to buy ore of iron.

Shenzhen-listed Hualing Steel recently said it already has a centralized iron ore purchasing unit for its steel subsidiaries, but will not just look at prices to buy ore iron, noting that low-priced but low-quality shipments could negatively impact its production and costs. .

An east China-based producer said it mainly imports iron ore on its own or sources it from its parent company and has no plans to bring together other steel mills in northeast China to source iron ore.
What awaits us?

Meanwhile, CISA recently revised its 2025 domestic production target for China’s newly added iron ore up to 100 million tonnes from a previous estimate of 50 million tonnes.

For the overall national iron ore production, CISA estimates that it would reach 370 million tons by 2025, which is 100 million tons more than the previous estimate.
Similarly, by 2025, steel scrap use is estimated at 300 million tonnes, up 70 million tonnes from a previous estimate, and iron ore supplies from company holdings Chinese mines in overseas mines are estimated at 220 million tonnes, according to CISA.

Authorities have urged China’s steel sector to use more scrap metal to save iron ore resources, a call in line with the country’s dual energy and emissions control policies.

Based on China’s crude steel production estimated at 1.065 billion tons in 2025, domestic iron ore and steel scrap could account for 21% and 26% of raw materials in the steel sector, respectively, up from 6 percentage points from 2020, which would reduce reliance on mineral imports, according to CISA.
Source: Platts

Rosemary C. Kearney