TRADE & COMMODITIES www.drycargomag.com AUGUST 2021
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Global iron ore trades China seeks to reduce dependence on exports from Australia
An unresolved riddle for commodity analysts is whether prices of raw materials used in steelmaking, iron ore, metallurgical coal and ferro-alloys are moved by how steel behaves in the market — or it is the other way round? writes Kunal Bose. Going back into recent times, it will be found that prices of iron ore, constituting the largest raw materials cost element in steelmaking and of steel have moved in the same direction since 2010. However, prices of iron ore and steel were disjointed in 2018. But why did this happen? According to S&P Platts Analytics, in fairly long-time ore prices, then moderately range bound were not moved by rising steel prices. Considering that China moves its mammoth steelmaking machine by using imported iron ore — mainly from Australia and Brazil and to a lesser extent from producers such as India, Russia and African countries — the volume of its buying should automatically have an important bearing on the mineral price. Political frictions between Beijing and Canberra are rising, more recently because of Australia deepening its involvement with the Quad grouping with the US, Japan and India forming an anti-China tag team in the Indo-Pacific. But even then China will find it difficult to wrestle itself away from over 62% dependence on supplies of iron ore from Australia. The very distant Brazil has
a share of more than 21% of Chinese ore imports. China gets supplies of close to 17% of the steelmaking ingredient from other sources. Considering that China raised ore imports from Australia by 7% to 713mt (million tonnes) in 2020 (source: China’s General Administration of Customs), it will not be easy for Beijing to reduce its dependence on the world’s by far the biggest supplier of ore, whatever it may say about diversifying its import sources. Brazilian supplies last year was up 3.5% at 235.7mt. Imports from India rose sharply to 44mt from 23.8mt in 2019 and these constituted the most in nine years. Almost two-thirds of Indian exports to China had less than 58% iron content. Interestingly, Indian steelmakers have no appetite for ore with less than 62% iron (Fe) content and their marked preference is to use lump ore. According to Indian Bureau of Mines, the country is endowed with iron ore resources of 31.32bn tonnes, including 20.576bn tonnes of haematite and magnetite at 10.747bn tonnes, that should be good to fulfil requirements of the domestic steel industry. It should also leave enough surplus for exports. Despite this, though, Indian iron ore export policy has been marked by uncertainty and globally unpopular export duty, which also was subject to changes from time to time much to the dislike of importers. Now
secondary steelmakers with a share of 40% of India’s steel production have launched a major campaign based on what they claim the prevailing “abnormal prices of iron ore and pellets” for “restrictions” on export of raw materials. The easy supply of both iron ore and pellets, however, puts paid to their demand. Moreover, Indian miners have traditionally taken price cues from their global peers. China will be putting a few bets on India because of its export policy zigzags. Then where does Beijing look to wherefrom it could secure large volumes of ores on a long-term basis for reducing its dependence on Australia and also imparting price discipline on big miners? West Africa’s Guinea where at Simandou lie the world’s largest reserves of unexplored high quality iron ore. At the 110km range of Simandou hills, blocks No1 and No2 are holding approximately 3.6bn tonnes of high quality ore with ferrous content of 65.5% and above. But the principal challenge of opening mines at Simandou will be to build an approximately 650km railroad and also a modern deep sea port for ore shipments in bulk carriers. The project has been in discussion since 2010 but the enormity of the task of developing time-consuming infrastructure of the kind that Simandou demands and raising funds proved to be too much for
