Yang Siming, president of Jiangsu-Province based Chinese steelmaker Nanjing Iron & Steel Group Corp., stated at the 11th Steel Development Strategy and Supply/Demand Conference held recently in Shanghai that Chinese steelmakers' iron ore purchasing strategies have indicated several significant changes due to the sharp declines in iron ore prices. Chinese steel producers now mostly purchase iron ore from the global mining giants, whereas before they purchased from the giant miners and from the smaller miners. Previously, Chinese steelmakers met 70 percent of their iron ore needs from overseas miners and 30 percent from domestic miners, while these shares are now 90 percent and 10 percent respectively. In addition, in order to lower their financial costs, Chinese steelmakers are now mainly paying for iron ore via letters of credit instead of by cash.
Mr. Yang went on to indicate that Chinese steelmakers have been able to lower their costs by decreasing their iron ore inventory levels, pointing out that their inventory levels are now half of what they were previously. In addition, he suggested that Chinese steelmakers should step up their purchases of iron ore when iron ore prices moved below $50/mt, as many small-scale iron ore miners will retreat from the market due to losses caused by low sales prices, while the global mining giants will have greater opportunities when the small miners exit the market. Last but not least, he said the Chinese steelmakers could consider acquisitions of some attractive iron ore mining companies when iron ore prices have moved to low levels and these companies have withdrawn from the market.