china seeks cheaper iron ore supplies

China seeks cheaper iron ore supplies

Sarah-Jane Tasker
From: The Australian
September 03, 2011 12:00AM

CHINA is increasing iron ore imports from countries outside the major producing regions of Australia and Brazil to diversify supply away from the players that dominate the sector.

The economic powerhouse has reported that iron ore imports from countries other than Australia, Brazil, India and South Africa had increased by up to 4 per cent in the first half of this year, compared with the same period last year.

Global giants BHP Billiton, Rio Tinto and Brazil's Vale control about two-thirds of the world's seaborne iron ore trade.

With supply contracts now settled on market-clearing prices, as opposed to long-term benchmark agreements, Chinese steel mills are starting to feel the pinch of the rising price of the sought-after commodity.

The China Iron & Steel Association has widely flagged that it has an ambitious plan to source 50 per cent of the steelmaking ingredient from Chinese-invested overseas resources, up from 10 per cent now, in the next five to 10 years.

MineLife senior resource analyst Gavin Wendt said the push from China for alternative supplies of iron ore was primarily to do with price but it was also because of the historic level of demand from the Asian giant.

"China feels that the big three producers has them over a barrel when it comes to pricing control and that is what they really are upset about," Mr Wendt said.

BHP and Rio Tinto reported record earnings last month on the back of the rising price of iron ore and increased production from the majors.

The biggest money-earner for BHP in its record $22 billion profit was its West Australian iron ore business, which reported a 122 per cent gain in earnings before interest and taxes to $US13.33bn ($12.4bn).

Commodity price gains, particularly in iron ore -- where average prices in the half were $US156 a tonne, up from $US110 a year earlier -- contributed $US5bn to Rio's underlying earnings.

Rio iron ore expansion managing director David Joyce said this week that Rio expected demand to increase by at least 800 million tonnes a year over the next eight years, more than the combined existing production of Australia and Brazil.

Mr Wendt said the top three iron ore miners had aggressive expansion plans designed to meet the unprecedented demand but China was now desperate to see new sources of supply emerge and "the market share of the big three decline".

http://www.theaustralian.com.au/business/mining-energy/china-seeks-cheaper-iron-ore-supplies/story-e6frg9df-1226128456943