China Plans to Create Iron-Ore Mining Giant – by Chuin-Wei Yap (Wall Street Journal – March 20, 2014)

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Goal is to Limit Dependence on Imports

BEIJING—China plans to create a conglomerate of iron-ore mining giants that would in 10 years produce at least half of its domestic ore, in a bid to end its steelmaking industry’s dependence on imports of the material.

The government intends to form a large mining group to be led by Ansteel Mining Co., a state-backed company that is the country’s largest ore producer. The new group would comprise six to eight mining businesses.

“This marks a strategy for our country to break our reliance on imported ore, and to support the transformation of our steel industry for international competitiveness,” the Metallurgical Mines Association of China said in a statement on Thursday. The association is working with the Ministry of Industry and Information Technology to push the project, which wouldn’t be completed until around 2025.

China makes half of the world’s steel, but depends on global mining giants for most of the iron ore it needs. Imports account for around 70% of the ore used in China’s steel production, the association said.

China produces about 1.5 billion tons of ore a year—more than any other country. But its domestic industry is highly fragmented, and its ore is regarded as low-quality compared to that from major producers such as Australia and Brazil, while twice as costly to produce, analysts say.

The government regularly complains about what it describes as the foreign suppliers’ “monopolistic” pricing power. In 2010 Beijing played a key role in ending a 40-year-old term-pricing system that was created by these suppliers and that China said was unfairly stacked against buyers. Under that system, three global mining companies—Rio Tinto PLC, BHP Billiton Ltd. and Vale S.A.—met once or twice a year with Chinese state and industry representatives to set prices for most of the world’s traded ore.

The shift to more transparent spot prices, however, hasn’t yielded significant discounts. Even amid an ongoing economic slump, ore prices are still 9% higher this week than they were in March 2010, when the term-pricing system came to an end, and have been as much as 73% higher, according to data provider The Steel Index.

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