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China to boost its domestic iron ore supply: report

Source:   Time:

BEIJING, Nov. 8 (Xinhuanet) -- China will boost the domestic supply of iron ore to a large extent during the 12th Five-year Plan period (2011-15) in order to rely less on the three world mining giants - Vale, Rio Tinto and BHP Billiton - sources with the China Iron and Steel Association (CISA) told the Economic Observer Monday

The percentage of domestic supply will rise to over 45 percent by 2015, the sources said, a substantial rise from the level of 32 percent in 2010.

Ding Gen, senior analyst with custeel.com, said that a 13 percent rise in supply was possible.

Steel has become a pillar industry in China, having contributed a lot to the fast growth of its economy. China consumes an annual average of 700 million tons of crude steel, Rong Gang, chief economist with hbh-steel.com, told the Global Times Monday.

As more than half of China's iron-ore demand is met through imports, primarily from Brazil and Australia, the pricing of iron ore has become a heated issue.

Luo Tiejun, an official with the Ministry of Industry and Information Technology, said Sunday that a supply guarantee system for iron ore would be written into the steel industry's five-year plan and that iron ore supply would be regarded as an issue of national security, a move welcomed by industry insiders.

Dominance of the global market by the big three firms has resulted in limited profit margins for Chinese steel producers.

"In 2010, the profits of the big three exceeded the total profits of the 78 largest Chinese steel producers," said Luo.

The price of imported iron ore has dropped by over 30 percent since September, which might strengthen China's hand in proposing a new pricing system, Ding of custeel.com told the Global Times.

"China can now be more active in negotiations, as our demand for iron ore will have slowed by 2015," Ding noted.

The government also intends to encourage consolidation in the industry, so that the top 10 steel firms can account for 60 percent of the country's total steel output by 2015, up from 48.6 percent in 2010, according to the industry's five-year plan.

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