China has stepped up its campaign to source more iron ore from smaller independent players, as it attempts to break the stranglehold of the big three miners, Rio Tinto, BHP Billiton and Brazil’s Vale.
The semi-governmental China Iron and Steel Association (CISA), has unveiled a target of securing half the country’s supply outside the majors, but did not provide a timeframe.
Alternative suppliers could include Australian groups with significant expansion plans such as Fortescue Metals Group and Atlas Iron.
Fortescue alone will add 100 million tonnes of iron ore production from June 2013, nearly all of it going into the Chinese market. China imports around 700 million tonnes of iron ore a year at the moment.
In 2011, 60 per cent of China’s iron ore came from the big three miners, according CISA vice-president Wang Xiaoqi. The new target is yet to be adopted as official government policy and analysts doubt whether it could be achieved over the near term.
But it does show how keen China is to diversify away from the big three.
Smaller iron ore miners talk about receiving a “junior premium” when selling to Chinese buyers and say they are very well supported in the market.
The Chinese government’s official goal is to secure 40 per cent of iron ore from domestic sources and overseas mines in which the state has an investment by 2015.
CLSA analyst Ian Roper estimates that China will fall short of this target, but still secure around 35 per cent of supply from so-called “China Inc” by 2016.
“As the market moves into oversupply, it is likely that mines with Chinese investment will have a better chance of staying in the market even if they have questionable economic returns, due to the strategic nature of their ownership,” Mr Roper said in a recent report.
CLSA has forecast iron ore prices to remain around $US135 a tonne this year, but decline to $US75 a tonne by 2015.
In Australia, CLSA estimates China Inc will have an ownership interest in around 80 million tonnes of iron ore, or 4 per cent of domestic supply, by 2016.
The CLSA research indicates China is some way off securing 50 per cent of supplies outside the big three.
The chief information officer at research firm Mysteel, Xu Xiangchun, said China was looking to source more supply outside its traditional markets of Australia and Brazil. “China will increase iron ore imports from the United States, Canada, Russia, Indonesia and Africa,” he said.
The move away from the big three comes as China also looks to encourage miners to use its recently established online trading platform, China Beijing International Mining Exchange. “We encourage more independent miners to join our platform,” said Dong Chaobin, president of the exchange.
“Only through this way can we make the structure of the country’s iron ore imports more reasonable.”
Australia’s fourth largest listed iron ore miner, Atlas Iron, joined the online trading platform on Friday at a ceremony attended by Treasurer Wayne Swan in Beijing.
Atlas chief executive Ken Brinsden said the company sold around 50 per cent of its iron ore on the spot market and the exchange would form part of this.
“It is one way in which we can deal in the spot market,” he said.
EIO Price at posting:
21.0¢ Sentiment: None Disclosure: Held
