2006 international
iron ore price negotiations finally ended. Facing 19% price hike, Chinese steel mills felt not only bitter taste, but also unprecedented hunger for mine resources.
Actually,
China mills have gone abroad to invest in mines for
iron ore and other metals for more than 10 years. In the recent years, more and more mills joined in the procession for mines and their footmarks can be found all over the world, but the total scale of invested mines is still small so far. Presently, among all imported
iron ore, only about 20% are from the mines invested by
China mills. After this round of price negotiations, to hasten steps to buy more overseas mines with good quality has been placed on
China mills' agenda.
Currently,
China mills' interests mainly concentrate on mines located in
Brazil,
Australia and
India. Certainly the reason for this is that these countries are major
iron ore suppliers in the world with rich and high-quality iron mines resources.
China mills' strategies of gaining
iron ore here can be summarized in 3 points:
Wholly or partly owned mines…
80%
iron ore in the present world trade are controlled by the top three
iron ore companies:
BHP, RioTinto and CVRD. It's difficult to buy mine shares from these monopolies now for record-breaking profits in
iron ore. To buy mines owned by other companies may be a good choice for
China mills though they're perhaps not cheap. For example, Shougang have gained 73% share of Asia Iron Holdings Ltd (
Australia) after paying AUD 52.50 million (app. $39.1 million) recently. If this transaction is approved by Australian FDI authority, Shougang will be able to legally mine magnetite, which is used to produce
iron ore ball, in Extension Hill area for 20 years with yearly ore output about 5 million tons.
Joint-invest together with ore suppliers to produce steel or ore products
By this way,
China's mills will be able to get
iron ore indirectly and gain profits by lower cost of steel and price hike of ore products.
Baosteel, the No. 1
China steelmaker is negotiating with Brazilian CSN to build a new steel mill with yearly output of 6 million tons. The latter is
iron ore supplier and biggest steelmaker in Latin America. It's rational to think that capital cooperation will help
Baosteel to get more ore resources directly. And, messages from interior say that
Baosteel is also planning to build a new mill to produce lump
iron ore together with Jinan Steel and CVRD in Rizhao, a port city of Shandong province. This investment project needs RMB 2.5 billion ($313) and will form capacity of 10 million tons every year.
Prospect for new mines
This is a long term strategy with high risks and returns. Many Chinese mine companies and steel mills have taken steps to find new mines in other countries together with local companies. Recently, Sinosteel has concluded agreements with an Australian mine company to co-prospect for rich hematite located in west
Australia. After several months' preparation,
Baosteel plans to register a new subsidiary soon to mainly deal with searching for new mines, investing on mines and other businesses.
Come along with world steel giants and mine giants, worldwide competitions for
iron ore resources inevitably will be fiercer in the future. Of course, such situation is based on optimistic development expectation of world economies, especially major end market countries, like
China.