Chinese steelmaker, Wuhan Iron and Steel, has purchased reserves of two billion tons of iron ore, according to the country's National Development and Reform Commission. The purchase increases the company's reserves of iron ore to four billion tons.
The iron ore were acquired from the Soalala Iron Ore Deposit in Madagascar and the reserves were purchased the in conunction with Guangdong Foreign Trade Group and Kam Hing International Holdings
China's large steel makers, Sinosteel and Anshan Iron and Steel Corp, say they are willing to continue to invest in Australia, despite a proposed 40 percent tax on the profits of Australian mining companies.
Speaking at a conference in Beijing on Monday, Sinosteel president Huang Tianwen said "We are reviewing how the tax will impact our companies, and undoubtedly, it will affect costs and profits in our local projects," however the company is still committed to exploring overseas resources.
Bai Jingpu, vice-president of Anshan Steel, also said the company is evaluating and analyzing the impact of the "super tax" on the Australian mining industry, but he also added that the company will continue to invest in the country.
Australia’s tax plan for miners was released last week and is expected to start in July 2012. Some Australian companies have criticised the plan saying it will adversely affect future projects in the country. Xstrata Copper has already announced that it is to shelve future plans for projects in northern Queensland.
However, Chinese steelmakers companies are looking to secure raw material supplies, particularly in the light of huge increases in raw materials and a shift from annual to quarterly contracts by the big three global iron ore miners, BHP Billiton, Vale and Rio Tinto.
Sinosteel and Anshan already have projects in Australia. Sinosteel bought iron ore company Midwest in 2008 while Anshan steel has a stake in Ginadalbie Metals Ltd with whom it is developing the Karara iron ore project in Western Australia.
China’s iron ore imports grew by 11.6 per cent in the first four months of this year compared to the corresponding period in 2009.
The Chinese government has approved a joint-venture on the Eyre Peninsula in South Australia between Wuhan Iron and Steel (Wisco) and Australian iron-ore miner Centrex Metals.
All the conditions surrounding the joint venture have now been met and Centrex is targeting the deal to be closed by the end of May.
Under the terms of the agreement, Wisco will earn a 60 per cent interest in the iron-ore rights of five of Centrex’s exploration tenements on the Eye Peninsula for a total investment of A$271-million.
Wisco is to invest A$75-million of the total investment capital into sole funding of the exploration of the joint venture and will take a 15 per cent direct equity stake in the enlarged capital of Centrex.
Other points to note in the deal:
- WISCO is to pay Centrex A$51.5 million on completion (A$ 0.5 million deposit already paid) and a further A$ 26 million on the first anniversary of the completion (total A$ 78 million).
- WISCO is to pay four further payments of A$ 27 million if and when the JORC Inferred Resources for the project reach 1.25Bt, 1.5Bt, 1.75Bt and 2.0Bt respectively (up to an additional A$ 108 million).
- WISCO is to additionally sole fund the first A$ 75 million of exploration for the Joint Venture.
- WISCO is to assist with project financing for construction.
The two companies have also signed a heads of agreement to develop Centrex’s Sheep Hill port facility on the peninsula which would seek approval for the development of a Cape-sized vessel capable, deep-water port facility for use by the joint-venture and other exporters.
Reports from China suggest that some Chinese steelmakers have signed private pricing contracts on a quarterly basis with global iron ore suppliers.
The China Economic Times cites an unnamed executive at China’s largest steel mill, Hebei Iron and Steel Group, as saying that several of the company's subsidiaries had no choice but to accept the quarterly pricing proposal as their ore reserves would last last until mid-May.
"Some steel mills, including us have accepted the new quarterly pricing system, based on the previous three months' average spot prices," a sales executive from another large steel mill told China Daily.
"The China Iron and Steel Association (CISA) has issued a document asking steel mills not to sign iron ore contracts with the three big miners until the final negotiations are completed. But we cannot stop production and hence most of the steel mills have signed contracts privately like they did last year," he added.
The Shanghai Securities Journal suggested on Monday that Chinese steelmakers were basing these deals on Vale's agreement last month with Japanese and Korean mills that resulted in a 96.4% rise on last year's benchmark to about $110 a metric ton.
Official sources have denied the reports.
Some analysts estimated that the uptrend in iron ore prices would be short-lived, as most traders have started to show pessimism on market prospects.
The three global miners - Vale, Rio Tinto and BHP Billiton - broke the 40-year tradition of selling iron ore on an annual contract basis this year opting instead for a quarterly pricing system.
Iron ore price talks are “beset by differences” according to the chairman of one of China’s largest steel manufacturer, Angang Steel Co.
Speaking to reporters in Hong Kong on Wednesday, Zhang Xiaogang said that the big three global miners actually cut exports to China during the talks. “That was a step they took as part of the negotiations,” he said.
The big three global miners – BHP Billiton, Rio Tinto and Vale - are trying to get Chinese miners to go from annual to quarterly contracts. Steelmakers in other parts of Asia, such as Korea and Japan, agreed quarterly prices from 1 April, however their Chinese counterparts – with the support of their government – are holding out for an annual benchmark deal.
Angang plans to increase capital spending by 19 percent to $1.4 billion this year, company secretary Fu Jihui said in Hong Kong. The company has enough capital to cover operations, and doesn’t plan to sell any more equity, Fu said. Orders and export demand for steel are improving this year, Vice Chairman Chen Ming said.
China’s largest minerals and metals trader, China Minmetals Corporation, is considering iron ore mining projects in Mauritania to diversify its raw material sources, a report in the China Daily newspaper said on Friday.
The paper reports that the company’s vice-president Xu Siwei, said on Thursday that it has started due diligence on iron ore projects in the West African country and that it expects to sign an agreement soon.
"Other international miners have also expressed interest in the Mauritania mines, but we are confident of succeeding," said Mr Xu.
Mauritania already has one large iron ore operation in SNIM, which exports much of its output to Europe, in particular to France.
Minmetals imported 4 million tons iron ore from Mauritania in 2009 and Mr Xu said that the figure would be higher this year. Mauritania is the ninth largest iron ore supplier to China and Minmetals has been importing Mauritanian iron ore through its branch office in Germany.
The country has been producing iron ore since the early nineteen-fifties. Iron ore mines are situated at at Idjill Kédia, M’haoudat and Guelbs.
China is the latest overseas country to consider mining projects in the country.
Minmetals acquired Australian zinc miner Oz Minerals for $1.4 billion in June 2009 and last year also gained control of Hong Kong-listed Hunan Nonferrous Metals Co Ltd.
Chinese miners will consider more investment opportunities in the higher-risk investment destinations of Africa, Central Asia and Russia as it is difficult to acquire high-yielding mines in low-risk countries like Australia and Canada this year, the newspaper said.
The chairman of the China Iron and Steel Association has blasted iron ore miners for their attitude towards their Chinese customers.
Speaking at an industry conference, Luo Bingsheng said that the miners are no longer negotiating but dictating prices to their customers.
"There are no negotiations any more," Mr Luo said "now it's 'I say the price, you must accept, or else we will stop supplying you.'"
Mr Luo accused miners Vale, BHP Billiton and Rio Tinto of "a high degree of monopoly" in the supply of seaborne iron ore.
He added that while steel prices have risen sharply the domestic steel industry still faced the challenges of global protectionism, sharply higher inventory levels and slow consolidation in the industry.
Industry or Government May Instigate Investigation
A report in China suggests that the country’s government is likely to investigate suspected monopoly abuse by the world's three iron ore mining giants.
The report, in the Economic Information Daily, cited an unnamed legal expert as saying that the three companies – Vale, Rio Tinto and BHP Billiton – are highly coordinated in the supply, transportation, and pricing of iron ore which, it said indicates a clear monopoly abuse.
The paper quote the legal expert as saying there were two ways to launch an investigation into foreign companies' monopoly. The ‘victim’ firms can file a monopoly case with the government and the government can then start an investigation. But if the monopoly has a negative impact on China's economy, the relevant government departments can initiate the investigation themselves.
China Development Bank Corp. and Bank of China Ltd., have agreed to provide most of a $1.2 billion loan to Gindalbie Metals Ltd. to develop its Karara iron ore mine in Western Australia.
Gindalbie, which is developing the mine in a joint-venture with China’s Anshan Iron and Steel Group (Ansteel), said on Friday that it has signed a mandate letter with the banks for a 12-year loan facility. Conditions will be finalised by 30 June. The project loan facility will be secured against the Karara project and the shareholders’ shares in the joint venture project vehicle, Karara Mining Limited.
Last month Gindalbie and Anshan signed an agreement estimated to be worth $65 billion for the Chinese steelmaker to buy the whole of Karara’s output over the life of the mine. The mine is expected to begin production next year with output estimated at 30 million tonnes a year.
Gindalbie Managing Director Garret Dixon said in a statement that the loan is based on the US six-month London Inter-Bank Offer Rate (LIBOR) without giving details of the margin.
Traders Banned from Importing Ore with less than 60% Fe
China has banned the import of all grades of iron ore with an iron content of less than 60%. The move was announced on Thursday by the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters (CCCMC) and appears to be with immediate effect with reports of Indian shipments of 55% iron content already being turned away.
The move is expected to impact in particular on India’s iron ore mining industry as around 40% of the Indian iron ore exports are low grades. Almost all of India's exports go to China, which has imported 106 million tonnes of Indian ore in the last 12 months.
BHP Billiton has won a 99.7 per cent price rise from its Asian iron ore customers for the April-June quarter.
The news came from the London-based commodity team at Macquarie Bank, which cited steel industry sources in Japan. BHP will charge $US120.08 a tonne for Pilbara fines iron ore which, the bank says, "represents a massive 99.7 per cent rise over 2009 Japanese fiscal year contracts".
However, taking into account current freight rates, the settlement would result in Australian iron ore landing at around $US131.50/tonne on a delivered Asia basis, a 22 per cent discount to current spot levels.
Macquarie understands that prices for BHP's lump iron ore were approximately $US135/tonne for the March-June quarter, 88 per cent above 2009 levels.
In March BHP said it had reached agreement with a significant number of Asian to move existing annual iron ore contracts onto quarterly pricing arrangements.
Industry experts in China have criticised the China Iron and Steel Association’s call for a boycott of iron ore produced by the big three global miners.
CISA has asked Chinese steel mills to concentrate on running down the stockpile of 75 million tonnes of iron ore sitting in the nation’s ports rather than buying from Rio Tinto, BHP Billiton and Vale. The call came in the wake of steelmakers in Japan and Korea agreeing quarterly pricing commencing 1 April and a price rise of over 90%.
However CISA’s call seems to have divided the industry.
"CISA sounds like a lobby representing Chinese steel mills. However, it does not run the business, and hence it has no idea of the real needs of the steel mills," one sales manager from a steelmaker in China’s Hebei province told the China Daily newspaper on condition of anonymity.
"If we don't purchase iron ore for two months, it will have a negative impact on our output. We will talk with miners privately to secure ore supplies," he said.
Analysts say that if steelmakers don’t buy from the global miners for two months, the surge in demand at the end of that period will lead to increased prices.
Li Xinchuang, president of the China Metallurgical Industry Planning & Research Institute, said that the country should enhance exploration of domestic iron ore mines and increase investments in overseas mining resources to have a bigger say in the pricing negotiations.
"The situation can be quite different if China controls 50 percent of the global iron ore imports," he said.
Meanwhile, Australian trade minister Simon Crean has said the boycott is "doomed to fail."
``What they have to understand is this is the market at work,'' he told reporters in Canberra on Tuesday.
``They can't influence the market by centrally-controlled edicts. That will be bound to fail.
``If their demand is as strong as it is, and they're having to compete with other countries who are competing for the same resources, then the price effect in the current circumstances is the natural consequence.''
Australia’s Federal Trade Minister Simon Crean has criticised calls from China for a two-month boycott of iron ore purchases from the ‘Big Three’ global miners.
A report over the weekend said that the China Iron and Steel Association (CISA) has urged the boycott in protest at what it claims is a price monopoly by Rio Tinto and BHP Billiton, and Vale.
CISA urged steelmakers and traders to use up what it claimed to be a two-month stockpile of iron ore in the nation’s ports before buying again from the large global miners.
Last week steelmakers in other Asian countries such as Japan and South Korea agreed to accept price increases of almost 100 per cent for iron ore supplies over the next three months; however Mr Crean said that calls for a boycott went against the spirit of the market.
"You've got to let the market determine the price. You can't be issuing directives in terms of restricting supply," he said.
Mr Crean suggested that China should seek market-based remedies such as helping to improve efficiency and iron ore supply from Australia.
"That's the way you get the balance back between demand and supply. To simply try and do it through central edict defeats the whole purpose of functioning as a market," he said.
Mr Crean suggested that CISA’s call would fall on deaf ears and that a boycott was unlikely to succeed because demand for iron ore in China was so high.
Chinese steelmakers are still in talks with the three large mining groups over a benchmark price, however there are fears that the benchmark pricing system may be coming to an end. Traditionally, prices have been set annually for the period from 1 April to 31 March each year; however with spot prices around double previous contract prices miners have been trying to impose quarterly pricing contracts on their customers. Although steelmakers in Japan and South Korea have agreed to quarterly pricing Chinese steelmakers – and their government – are known to want the annual pricing mechanism to continue.
China is the world’s largest consumer of iron ore.
Iron Ore Junior Will Use Benchmark As Reference Price
Gindalbie Metals Ltd has said that the price it sells its iron ore to its Chinese joint-venture partner, will depend on the prices achieved by the industry’s big three global miners.
Speaking to Australia’s Sky News Business Channel on Sunday, chief executive Garret Dixon said "The best thing that we can do is to use their reference price, the prices they determine, as a reference price for our project. What we do as a small guy I suppose is ride on the back of the negotiations of the big guys out in the market. That's the way we have to play it.”
Production at the company’s Karara mine will be shipped to Chinese steelmaker Ansteel commencing next year from the port of Geraldton, 250 miles north of Perth in Western Australia. The two companies signed an agreement this week that could deliver nearly 900 million tonnes of iron ore over three decades once the Karara operation in Western Australia’s Mid West iron belt is running at full capacity in full swing.
A report from China suggests that the China Iron and Steel Association has asked domestic steel companies and importers to stop buying iron ore from Vale S.A, BHP Billiton Ltd. and Rio Tinto PLC for the next two months. The report, in the state-run newspaper, the Shanghai Securities Times, says that CISA has made the request in protest against what it sees as a price monopoly by the world’s three biggest iron ore miners.
China’s iron ore stocks currently stand at 75 million tonnes, enough for two months’ production, the newspaper said, citing CISA Secretary-General Shan Shanghua.
The newspaper also reported that they boycott is aimed at what it describes as "unreasonable requests for price hikes" from the global iron ore producers' and their move to a quarterly pricing system.
CISA met with steel mills on Friday to discuss strategy over the ongoing iron ore talks.
China Will Have To Accept Near-Doubling Of Iron Ore Price
The chairman of one of China’s largest private steel company has described his country’s talks with the large iron ore miners as “pointless” in the wake of Japanese steel mills’ acceptance of rises of more than 90 per cent for the raw material.
Speaking in a telephone interview with Bloomberg, Shen Wenrong, chairman of Jiangsu Shagang said that Chinese steelmakers will have to accept the higher terms that Brazilian miner Vale SA has negotiated with Japanese steelmakers. Earlier this week Vale agreed a price of $106 per tonne, up 92 per cent over last year’s price, however unlike in previous years were prices were agreed for the period from April to March the current price will only run to the end of June and will be reviewed on a quarterly basis. Vale says that 97 per cent of its customers have now accepted quarterly price contracts.
“We have no options,” said Mr Shen, “Iron ore prices have gone too far. We have to accept it, although we can’t afford it.”
Meanwhile, the World Steel Association has asked regulators to probe what it described as an “oligopoly” among iron ore miners and the China Iron and Steel Association said it will hold an emergency meeting to discuss the issue. Chinese steelmakers are still discussing their price. He Wenbo of Baosteel, which is leading the talks on behalf of his industry, said yesterday “the negotiations are very difficult.” Some smaller Chinese steelmakers have reached private deals with the iron ore miners.
The knock-on effect of higher iron ore prices looks to have been felt already. Lakshmi Mittal of ArcelorMittal said this week that he expects steel prices to rise by 21 per cent this year as a result of increased raw material costs.
Guernsey-based exploration company, African Minerals Ltd., has signed an agreement with China Railway Materials Commercial Corp. to develop the Tonkolili iron-ore project in Sierra Leone.
Under the terms of the agreement China Railway will take a 12.5% stake in Africa Minerals in a share issued that will raise £167.8 million, according to a statement released by Africa Minerals on Thursday. The funds will enable Africa Minerals to begin the first phase of production at Tonkolili.
This is the latest in a series of Chinese overseas investments to attempt to become less dependent on the three largest iron ore producers, Rio Tinto, Vale and BHP Billiton.
The managing director of Gindalbie Metals Ltd has told Reuters that he expects his company to triple iron ore production to around 30 million tonnes a year by 2020 from mining operations expected to start next year.
"We've got a plan to start producing in 2011 and by 2020 we will complete our ramp up to 30 million tonnes per annum," Garret Dixon said in an interview on Thursday. "We're starting at 10 million tonnes next year and will progressively increase after that," he added.
Production at the company’s Karara mine will be shipped to Chinese steelmaker Ansteel commencing next year from the port of Geraldton, 250 miles north of Perth in Western Australia. The two companies signed an agreement this week that could deliver nearly 900 million tonnes of iron ore over three decades once the Karara operation in Western Australia’s Mid West iron belt is running at full capacity in full swing.
Gindablie estimates that eight million tonnes of high-grade concentrate and two million tonnes of direct shipping ore will be produced at Karara in 2011.
A second larger port, proposed in nearby Oakajee, is needed to allow the company to maximise its production.
Chinese steelmakers say they have yet to agree to move to a short-term pricing mechanism for their iron ore supplies, despite steelmakers in other Asian countries agreeing to quarterly contracts.
Earlier this week, both BHP Billiton and Vale announced that major steelmakers in Japan and Korea had agreed to move to shorter-term contracts for the April to June quarter, based on prices in the sport market. Previously, prices were agreed on an annual basis from April to March each year. Prices to steelmakers in those countries have increased by almost 100% over 2009-10 price.
However, Luo Bingsheng, vice president of China Iron and Steel Association said that the long-standing tradition of annual contracts brings stability to the industry and that steelmakers in China would oppose any move to quarterly pricing. Meanwhile the Chinese government has backed its steelmakers with Jia Yinsong, an inspector from the Ministry of Industry and Information Technology's Raw Material Division, telling reporters at the China Iron Ore Conference this week: "We will certainly support long-term prices."
Mr Jia said that spot prices for iron ore will cause operational risks for companies, a risk for the industry as a whole and a credit risk.
Mr Jia added that he is concerned about the high inventories of Chinese iron and steel producers. The average profit margin for members of the China Iron and Steel Association was only 2.2 percent in 2009 and if iron ore prices double under the 2010 agreement this will push the entire industry into the red. Li Xin, head of the China Metallurgical Industrial Planning and Research Institute said that steelmakers would then be forced to pass price rises on to their customers, which will lead to higher costs for manufacturers of items such as automobile, consumer electronics and home appliances.
Commenting to the Chinese newspaper, People’s Daily, Mr Li said that Chinese steelmakers must break the stranglehold that the three largest iron-producers have on the industry. Chinese steel producers must go abroad, "If Chinese steel producers can control over 300 million tons of annual iron ore output abroad, the trend will be reversed," he said.
Hurricane Announced Key Tianjin Iron Ore Appointment
Hurricane Global Resource Corporation, a subsidiary of Los Angeles-based bank, Worldvest, has signed a Joint Venture to launch its Chinese Iron Ore Sales Office in Tianjin. The company has also announced the appointment of Qianli Ma as its Managing Director in charge of negotiating and managing all relationships with the Chinese steel industry.
Mr. Ma has extensive experience of the steel industry at state and federal level in China having previously served as Chief Purchasing Officer for a large state-owned steel producer and iron ore importer in China, overseeing the import of almost 35 million tonnes of iron ore in 2009 from over 90 suppliers around the world. Previously, Mr. Ma spent two years as the Deputy Representative for the Chinese Ministry of Commerce in Africa where he was highly involved in developing foreign trade, economic cooperation and foreign investment relationships between China and Africa.
Hurricane has begun assembling a consortium of steel producers seeking to secure long-term supplies of iron ore and is currently evaluating investment opportunities to develop iron ore mines for the benefit of this consortium. In the meantime, Hurricane has also begun sourcing interim supply and plans to broker iron ore transactions on behalf of its buyers.
Senior Managing Director Garrett K. Krause said: "At this time there is a dramatic shift taking place within the $80 billion global iron ore market. With the majority of the world's buying power, China has begun flexing its muscles and challenging the status quo. The result, in our mind, is an enormous opportunity for Hurricane to recognize and address the causes of the disconnect existing among producers and buyers in order to emerge as a long-term partner and solution provider in this market."
