February 18, 2014

CHINA: Beijing Urges Steelmakers to Pursue Overseas Iron-Ore Assets; China Already Imports 70% Of Total Global Shipments

Market Realist
written by Xun Yao Chen
July 12, 2013

The impact of China’s financial industry

The financial industry is an essential part of any economy. Without a stable financial system—one that supplies liquidity to businesses and individuals and bridges the gap between savers and borrowers—an economy can’t function as efficiently and productively as it could. So a collapse in China’s financial industry would grind its economy to a halt. Because China is an important importer of key raw materials such as iron ore, importing 745 million tonnes (70% of total global shipments) in 2012, changes to China’s economic outlook have a significant impact on shipping demand, which in turn affects the shipping rates of dry bulk shipping companies.

The Wall Street Journal
written by Chuin-Wei Yap
Wednesday January 29, 2014

BEIJING—China is urging its steel companies to buy more iron-ore assets abroad amid signs that many have been losing their appetite for such investments.

China imports around two-thirds of its iron ore, an ingredient in steel. Breakneck economic development and a flood of new wealth drove an overseas spending spree in recent years by Chinese steelmakers hungry for assets that produce iron ore. Many of those ventures have been plagued with expensive delays, however.

The National Development and Reform Commission on Monday said Chinese steelmakers should keep building up stakes in global iron-ore assets in the interests of China's strategic security and "speaking rights," or influence, in global trade. China's ore imports rose 10% last year to a record 819 million metric tons, according to customs data.

"China's iron-ore demand will still rise, its reliance on imports won't change, and the degree of monopoly in global iron-ore resources will still keep increasing," the NDRC said.

The commission, Beijing's top economic-planning agency, suggested that Chinese steelmakers offer to build mines, mills, ports, railways and energy facilities.

But the government remains wary of encouraging mills to increase steelmaking capacity at home, which has been blamed for worsening pollution. Chinese mills should "support building steel mills overseas, to reduce domestic demand for iron ore," the commission said.

A renewed push abroad could bring bargains for China. Because of rising global supply, iron-ore prices have fallen 20% from their peak of $155 a ton last year.

Chinese purchases of such assets fell to six last year from 16 in 2009, according to data provider Dealogic. Two such deals are in the pipeline this year, Dealogic said.

The value of the deals also fell. Chinese companies spent $1.2 billion in pursuit of global iron ore last year, according to Dealogic. At its five-year peak in 2010, steelmakers poured $2.7 billion into the sector.

A senior NDRC official in late 2012 said China should accelerate asset acquisitions abroad. He said, however, that having spent $10 billion in five years with few foreign assets delivering output posed a "difficult problem."

That wasn't meant as a call to slow the pace of China's world-wide push, said Chi Jingdong, a principal analyst at the China Iron and Steel Association. "The Chinese government is still very much encouraging overseas iron-ore investments," Mr. Chi said. Delayed projects are exceptions that don't detract from the overall policy, he said.

State-owned Metallurgical Corp. of China 601618.SH -1.17% in 2012 withdrew from a $3 billion project in Western Australia. Sinosteel Midwest Corp. shelved a $2 billion asset in the region in 2011. An $8 billion Citic Pacific Ltd. 0267.HK +0.98% project nearby got under way in 2006 and began to ship its first concentrate only last month. Citic said putting its first two production lines in place will help the company complete the project.

Baosteel Group Corp. in August said it no longer had overseas acquisition plans—unusual for a company that depends on foreign ore and had considered purchasing assets in Brazil and South Africa. Baosteel didn't respond to calls for comment.

Wuhan Iron and Steel Group last week said it wasn't bidding for the Canadian iron-ore assets of Anglo-Australian mining company Rio Tinto.

People familiar with the discussions suggested that Rio Tinto's price was too high, an indication that Chinese steelmakers no longer were willing to spend freely on ore.

No comments: