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China setting the pace for iron ore

Though China continues to import a huge volume of iron ore every year, 619 million tonnes last year, the country is now zeroing in on increasing domestic ore output to guard against reliance on global mining firms.

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MUMBAI -

The world's biggest consumer of steel is ready to raise the stakes. Steel demand in China is expected to rise by around 25% by the year 2015, to a huge 750 million metric tonnes. To ensure an adequate supply position, China is set to create three iron ore mining groups, with an output capacity of 100 million tonnes each.
Six other groups with a capacity of 30 million tonnes are to be cobbled together to ensure steady supplies. Iron ore is the principal raw material used to make steel.
Though the China Iron and Steel Association has predicted that steel production in 2011 is set to exceed 680 million tonnes, the estimate, based on a forecast that China's economy will grow by more than 9%, could well rocket higher.
``China and India are going to rule the steel market by 2012,'' said Sharad M Joshi of JSW Steel. He added that India too has raised its steel production capacity to emerge as the third largest steel maker in the world after China and the United States.
While China is set to produce an average 2 million tonnes of steel per day in 2012, India's steel ministry has set a target of 124 million tonnes production capacity by 2012.
Last year, China had a share of 46.7% of global steel production. India is expected to grow its steel consumption by 14% in 2011 and by another 15% in the next year, Joshi added.
According to data made available by the World Steel Association, India's steel production for 2010 was 66.8 million tonnes as against 62.8 million tonnes in 2009. This reveals a growth of just 6.4%, the lowest in the top 10 steel producing countries in the world, but the government is ensuring capacity addition with two big ticket investments of 12 million tonnes each.
Global exports of iron ore are also set to gain 28% to 1.4 billion metric tonnes by 2016.

Huge capacity

China has reportedly indentified iron ore reserves of 71.4 billion tonnes by the end of 2010. Over the next five years, its industry has said it will increase exploration efforts to find 20 billion tonnes of new iron ore reserves.
The country is not just relying on building numerous iron ore enterprises. Overseas iron ore mines in which China has invested may produce 90 million tonnes in 2011, up from 60 million tonnes in 2010. Official data has shown that overseas mines contribute 40% to China's total iron ore imports, at the same time reducing the country's reliance on iron ore exporters.
For some time now, home of the world's largest steel industry has been complaining that big iron ore miners have been trying to force their spot prices on Chinese customers, after Vale and Rio Tinto ditched a decades-old annual pricing system in favour of a more flexible quarterly scheme.

Mending fences

Rio Tinto is desperately trying to mend fences with China and has announced that it is doubling its procurement of mining goods and equipment to $1 billion this year. The company's relations with China hit a rough patch after it walked away from a $19.5 billion deal with Aluminum Corp of China (Chinalco) in June 2009. Then again when four of Rio Tinto's former employees in China were convicted of taking bribes and stealing secrets.
Last year, Rio Tinto spent $500 million on Chinese made manufacturing goods. And this year, it is doubling investment.
``In 2011, we expect to spend over $1 billion in raw material, operational and capital goods in China,'' Scott Singer, Rio Tinto's global head of procurement was quoted by newswire agencies as saying.
Under a new agreement, the first such deal for a Chinese manufacturer to export haul trucks, a Chinese firm will deliver four trucks to Rio Tinto's Pilbara project in Western Australia.
Meanwhile, China's steel lobby, the China Iron and Steel Association, has also urged the country to build its strategic resources stockpiles. Luo Bingsheng, former vice-chairman and current special consultant to the steel association said: ``Like oil reserves, China should also have iron ore reserves. Large amounts of ore can be bought when prices are relatively