More Chinese steel mills tend to domestic iron ore resources

China imported around 161.36 million tons of iron ore in the first half of 2006, with 22.94 percent year on year growth rate. This means 53 percent of total iron ore consumption in China was from imports. However, after 19 percent price hike of imported iron ore became evident in June, Chinese steel mills began to muse on how to obtain reliable iron ore supply. Although several years ago some local mills began to invest in overseas iron mines, the total scale of target mines is still small in size. Therefore, local mills cannot obtain enough resources from these mines abroad. Meanwhile, the top three global iron ore suppliers are controlling approximately 75 percent of all iron ore resources in the world and they are taking steps to develop and control more high quality iron mines due to huge iron ore profits. Under such a situation, more mills started to aim at undeveloped iron ore resources in China. The latest major domestic iron mine development plans mainly involve three steel mills: Wuhan Steel, Chongqing Steel and Shou Steel. Due to improvements in traffic conditions and mining technology, developing relatively poor mines has become feasible for mills. Wuhan Steel's target mine is located in West Hubei province with near 1.4 billion tons of iron ore. If this development plan turns out successful in the future, Wuhan Steel will obtain sufficient iron ore for approximately 10 years. Chongqing Steel is aiming iron mines located in Liangshan city of Sichuan province. These mines are expected to offer 5 million tons of ore every year and it will basically meet Chongqing Steel's requirements. Similar to Wuhan Steel; Shou Steel has also aimed at the iron ore mines in Hubei province. Top official from this mill said they would invest around RMB 8.5 billion ($1.07 billion) on mines with potential reserves of 2 billion tons, including exclusive development rights for 800 million tons of ore. In addition, many local mills are also interested in the iron mines located in the neighboring countries. Kunming Steel is just one of them. According to messages from Vietnam, this mill is negotiating with the local government to develop a local iron mine. Kunming Steel will gain 1.5 million tons of iron ore every year from 2008 if the project proves successful. Both major and small mills are taking positive actions to obtain more iron ore resources. While major mills need massive ore for steelmaking; many middle and small sized mills, on the other side, are suffering from losses due to low quality iron ore imports. Latest messages from several major ports show that large amounts of low quality iron ore has been imported to China and caused local mills' anger and claims. In many important Chinese port cities, unqualified imported iron ore inventory was close to the half of total inventory in the first half of this year. The main problem is, the damp base and impurity of iron ore is very high. The worst situation is in Fujian province: local authorities discovered that among total 36 batches of imported iron ore, 32 batches proved to be unqualified. The unqualified rate of ore is close to 90 percent, most of which is imported from India. The laws in China are currently not sufficient for steel mills to reach a resolution upon their claims. Therefore, the mills are now turning towards local iron mines, instead of importing iron ore. This trend is becoming more apparent, and a new tide of local iron mine development is approaching.