China Stance

Diversify iron ore sources: Minmetals

By Zhang Qi and Hou Qingyang (China Daily)
Updated: 2009-10-29 08:19

China Minmetals, the country's largest State-owned metals trader, has urged industry leaders to diversify iron ore supply and improve negotiation tactics to reverse China's unfavorable position in global iron ore deals.

"Chinese steel mills seeking lower prices (of iron ore) should think more about reducing dependence on the three global miners," Zhang Ye, vice-general manager of China National Minerals Co Ltd (MINCO), a wholly owned subsidiary of China Minmetals, told China Daily yesterday.

His remarks come at a time when China's steel industry is facing a de facto breakdown in iron ore negotiations for the year, while the outlook for next year's talks seems gloomy at best.

The three global miners, Brazil's Vale SA, Australia's Rio Tinto and BHP Billiton, contributed to about 50 percent of Minmetals' iron ore trading volume. But the company is looking to diversify its iron ore suppliers, he said.

Minmetals will expand its list of buyers from the current five, which include Ukraine, Chile and Russia, to eight next year. The targeted iron ore suppliers will be from North and South America, Zhang said.

He also revealed that Minmetals is close to finalizing some overseas investment and acquisition deals, but declined to reveal specifics.

MINCO's iron ore imports will touch 12 million tons this year, 2 million tons higher than anticipated, due to higher steel output, he said.

China produced 266.58 million tons of crude steel in the first half, up 1.23 percent over the same period last year, according to official data.

"It is difficult to reduce the proportion of iron ore imports from the three giant miners, given the quality of their iron ore and geographic position, but what we can do is to cut the dependence. For example, when the three miners cut supplies, we can at least have alternative resources," he said.

The relationship between Chinese steel mills and iron ore miners should be mutually beneficial since China is the largest iron ore consumer and the three giant miners account for 70 percent of the iron ore trading market, Zhang said.

"Chinese steelmakers should realize that the three global miners are very eager to sell in China and are competing with each other. So, Chinese steel mills should take advantage of this to ask for a better discount," he added.

Zhang suggested all Chinese steel mills should join hands to exert their influence during iron ore price negotiations.

China's steel industry lobby and top iron ore price negotiator, China Iron and Steel Association (CISA), is made up of 216 members, with 72 key members being State-owned steel mills. CISA is often questioned on whether it really represents China's 1,200 steel companies.

Zhang suggested that all the smaller steel mills that meet the government's industry requirements should be part of CISA.

This year's iron ore price negotiations have been deadlocked since June after China insisted on a 45-percent price discount, but Chinese steel mills opted to buy on the spot market or privately accepted long-term prices that had been set with other Asian steel mills.

The Chinese media, including some State-run organizations, have criticized CISA's inability to get a better discount from the global miners.

During the next round of negotiations, CISA should consult with experienced negotiators and market researchers to get a better price for iron ore imported from the giant miners, People's Daily Online quoted industry insiders as saying.