Iron ore security top priority of Chinese mills

Iron ore security is one of the "three major pain points" of China's steel industry and is linked to its well-being. Price of imported iron ore soared from the end of Apr'21 to a record high in mid-July this year. Although the price of ore subsequently began to fall, it is still maintained at a relatively high level above $130/tonne (t) (taking the CFR price of 62% iron concentrate imported from North China as a reference).

China's iron and steel enterprises are still facing great cost pressures. Becoming self-sufficient in iron ore has become the top priority of Chinese steel companies so that they can maintain a stable profitability graph, says a report by Beijing-based Lange Steel Information Research Centre.

Domestic iron ore output dropping since 2015

Since 2015, under the influence of national policies, China's iron ore output has continued to decline. In 2018, the volume dropped to a low of 763 million tonnes (mn t), which was about half of the 1.514 billion tonnes (bn t) produced in 2014. Production started to rise in 2019 and 2020, but still is less than 1 billion tonnes (bn t).

In recent years, development of domestic mines has been restricted by factors such as safety, environment, ecology, and resources. There is a problem of "one size fits all" situation to varying degrees. In addition to the difficulty of reviewing new mine projects, there are multiple procedures, and delays in obtaining mining rights by companies. The high costs and heavy taxes on production and operations have greatly restricted the progress of new mine projects.

In contrast, China's crude steel output has increased year on year from 804 mn t in 2015 to 1.065 bn t in 2020, a record high.

CISA bats for investment in mining

In the past two years, the China Iron and Steel Industry Association (CISA) has been vigorously advocating that, on the one hand, steel companies should speed up development of overseas equity. On the other hand, they should speed up investment in mining of domestic iron ore, and increase domestic iron ore output. CISA is also advocating that the government should simplify the approval process for new mining projects and reduce taxes on domestic mines. Luo Tiejun, vice-chairman of CISA, revealed at a recent Hebei metallurgical and mining summit that relevant departments are studying plans to support the improvement of domestic iron ore resource guarantee capabilities.

Hebei, Liaoning output soars

From Jan-Jul'21, the two major iron ore producing provinces of Hebei and Liaoning produced 325 mn t of iron ore jointly, accounting for 57% of the country's total output, up 30% and 12.5% y-o-y by 241 mn t and 84.25 mn t respectively. Among the 24 mineral-producing provinces (or municipalities directly under the Central Government), 18 had a positive increase in iron ore production from Jan-Jul'21, accounting for 75% of the total, of which 13 provinces had double-digit increases.

From Jan-Aug'21, according to statistics, Hebei province approved a total of 107 iron ore-related projects, an increase of 51 or 91% from the 56 in the same period in 2020. This shows that the number of iron ore-related projects promoted by enterprises has increased, while it also reflects the speeding up of government approvals of iron ore projects.

Increased investment in iron ore mining projects

According to data from the National Bureau of Statistics, from Jan-Jul'21, China's ferrous metal mining industry's fixed asset investment increased by 10%. Among them, the ferrous metal mining industry's private fixed asset investment increased by 14%.

From the perspective of profit-making, the substantial increase in private fixed asset investment in the ferrous metals mining industry in the first seven months reflects the bullishness of enterprises on the prospects of the iron ore industry.