(Economic Observation) Why does China have 65% of the world’s iron ore imported every year?
China News Agency, Beijing, July 7 (Reporter Pang Wuji) Iron ore prices are still high.
Over the past two months, iron ore prices have gone out of the "crazy stone" market. The main contract of domestic iron ore futures started to rise all the way from 542 yuan per ton in early April, and the price once approached 800 yuan per ton on June 8. Subsequently, the price of iron ore remained high and volatile. As of the 7th close, the main contract of iron ore futures was 767 yuan per ton, which rose more than 40% in more than two months.
Market analysis shows that the recent price changes in iron ore are mainly affected by two factors: supply and demand. On the one hand, Brazil, a major iron ore exporting country, was temporarily shut down due to the epidemic, which led to a decline in iron ore exports and shrinking supply; On the other hand, China, the country with the largest consumption of iron ore, took the lead out of the epidemic and steadily promoted the resumption of production. Iron ore demand was strong.
As an important raw material for steel production, rising iron ore prices will erode most of the profits of the downstream steel industry. According to data from the National Bureau of Statistics of China, from January to May 2020, China's ferrous metal smelting and rolling processing industry realized operating income of 2,546.95 billion yuan, a year-on-year decrease of 6.0%; total profit of 49.33 billion yuan, a year-on-year decrease of 57.2%; To 2%.
Behind the squeezed profits of the steel industry, China's iron ore has long been highly dependent on imports. In an interview with China News Agency, Li Xinchuang, president of the Metallurgical Industry Planning and Research Institute, pointed out that China’s iron ore imports in 2019 were 1.069 billion tons, which has remained at a high level of more than one billion tons for four consecutive years, while China’s overseas production The annual output of equity mines is only about 65 million tons, less than 10% of the annual import volume. Iron ore's external dependence reached 80.4%.
Insufficient domestic resources are the main reason why iron ore is highly dependent on imports. China's iron ore resource reserves are large, but rich ore resources are few. Li Xinchuang said that China ranks fourth in the world in terms of iron ore resource reserves, but the average iron grade of the ore is only 34.3%, and poor ore accounts for 98.8% of the total ore resource reserves. It can only be used after beneficiation and enrichment. However, this process is very costly, and coupled with multiple constraints on environment, safety, and land, China can only turn its attention to imports.
At present, China is the world's largest consumer and importer of iron ore. Li Xinchuang pointed out that China's iron ore imports account for more than 65% of the world's major iron ore trade volume. Moreover, the source of supply for imports is concentrated, with over 80% coming from Australia, Brazil and the four major mining companies. They are also the world's leading iron ore suppliers, such as: Australia and Brazil's iron ore exports account for more than 70% of global trade.
At the same time as the supply is concentrated, due to the relatively scattered domestic demand for iron ore and the low concentration of iron ore downstream users in the iron and steel industry, China has always lacked iron ore pricing power.
The data shows that in 2019, the concentration of the top 4 steel groups in China is 22.12%, the industry concentration of the top 10 steel enterprise groups is 36.82%, and the concentration of 22 steel groups above 10 million tons is only 52.38%.
How to solve this problem? In the short to medium term, Li Xinchuang suggested that local optimization could be the main focus, including accelerating the merger and reorganization of the steel industry, increasing concentration, and strengthening the right to speak in the iron ore market procurement; increasing the proportion of scrap steel utilization; forming a procurement alliance to strive for Quantity conversion; revitalize and optimize some existing equity mining projects that have competitiveness and potential, etc.
In the long run, Li Xinchuang said that to fundamentally solve the problem of iron ore security, the iron ore supply pattern must be changed. He suggested that on the one hand, increase guidance and support for enterprises to establish long-term efficient and stable iron ore bases overseas, and increase the proportion of overseas equity mines to imported mines to more than 30%. At the same time, consider the “going out” of the industry chain bundling mode of resource development, steel production capacity layout, and infrastructure construction, to promote win-win cooperation between domestic and overseas mining and upstream and downstream. On the other hand, select representative equity mine projects, speed up the development progress, and strive to achieve a new increase in iron ore supply of more than 200 million tons per year, thereby fundamentally changing the iron ore supply pattern. (Finish)