China seeks ore resources worldwide as iron ore price talks continue

The new round of international iron ore price negotiations between Chinese steelmakers and the world's iron ore magnates is underway at last. The final agreement probably won't be concluded until next April, just as was the case in the previous round. At present, China's steel market doesn't seem to be paying as much attention as the last time to the negotiation process. The main reason for this is the domestic market's current widespread expectation of a price drop. Though a representative of Brazilian mining giant CVRD announced a couple of months ago that they would increase their iron ore price by 40 percent next year, - citing rapid supply growth in both world and Chinese iron ore - the supply & demand relation in iron ore is changing remarkably. At present, China's steel enterprises are eagerly looking for ore resources worldwide in order to gain enough supplies to meet the market demand. Whether iron, copper, nickel or other metal and non-metal resources, all are potential targets for the Chinese companies. Due to the progressive domestic pressure for greater environmental protection, more China-based enterprises are tending to invest and develop overseas resources, and such businesses have been considerably active in this regard of late. One obvious trend is that more Chinese companies are interested in Africa due to its rich natural resources. It is safe to forecast that cooperation projects for the development of African resources will see an increase following the latest Beijing Summit & Third Ministerial Conference of the Forum on China-Africa Cooperation held in Beijing on Nov. 15, 2006. Recently, a major Chinese steel enterprise, the Sinosteel Group, announced that it signed an agreement with South African firm Samancor Chrome Co. for the purchase of a 50 percent share in the latter's chrome ore resources and chrome-iron factory at a cost of over USD 200 million. South Africa owns the richest chrome ore resources in the world, taking up 60-70 percent of the total. Before this deal, Sinosteel had established a joint venture in South Africa with an annual output of 400,000 tons of chrome ore and 120,000 tons of chrome-iron. In China, the output of the biggest chrome ore company is just 200,000 tons a year. Sinosteel is now the biggest chrome importer in China. Another Chinese steelmaker, Jiuquan Steel, invested in a chrome project in South Africa in 2002. In November 2006, the chairman of Chinese Citic Pacific Group Rongzhijian invested USD 800 million for the purchase of 17 million shares in the world's second biggest ore resource company, Anglo America Plc. The latter owns many varied ore deposits and other natural energy resources, most of which are located in Africa. In addition to these developments, Baosteel's major subsidiary, Baosteel Trading, has recently made field surveys of several overseas iron ore projects on behalf of its parent company. These ore deposits are located in Indonesia, India and in a few African countries. Although the details are still unknown to the public, agreements for investments and cooperation are expected to be concluded in the near future. Meanwhile, the overseas ore magnates are also hastening their steps in the Chinese domestic market. After investing in a limestone mill, an asphalt mill and a zinc mill in China, Anglo America Plc. is planning a coal project in northwestern China. BHP and CVRD are also actively engaging in contacts with local suppliers of ore resources as part of their search for investment opportunities.