China's Iron Ore Import: Unfinished Life and Death

If someone uses the phrase "Forever is coming to the wind to fill the building" to describe the precarious Chinese steel industry, it does not seem to be an exaggeration. From the trend of China's steel prices after the Spring Festival, we can begin to see a clue.

As of last week, the domestic steel product index fell sharply compared with the previous year, among which the decline in the cold-rolled and long products markets was particularly dismal. As a result, the industry is pessimistic about this industry and believes that the possibility of a recent market recovery is not great. The “spring” of the Chinese steel industry is still far away.

As we all know, the Chinese steel industry is facing such a situation. There are many reasons for this. However, the three major mines have monopolized the global trade of iron ore and will always be China's “candor”.

Yesterday, Rio Tinto announced profits in its three major mines, showing that its company’s 2011 net profit was US$5.8 billion. Prior to this, another mining company, BHP Billiton, also announced that its net profit in the second half of last year decreased compared with the previous year, but it still reached 9.94 billion U.S. dollars. From the data disclosed by the two companies, the net profit of these two major mines has surpassed the sum of profits of 77 large and medium-sized steel enterprises in China, even if they plan to go to another giant, Vale.

Last year, the total profit of 77 large and medium-sized steel enterprises in China was only 80 billion yuan. The comparison between the two figures shows once again that due to the monopoly of foreign iron ore on China’s iron ore raw materials, Chinese steel companies are in a difficult position and have always been “working for the international mining giant”.

In fact, in the face of the "old crisis" of Chinese steel companies, domestic companies have tried to get rid of the blackmail of international giants through diversified procurement. However, from the current perspective, the results are not satisfactory. China not only suffered from trade protection policies adopted by some iron ore exporting countries, but even the external environment of iron ore imports has been further deteriorating. At present, emerging countries such as India and Vietnam continue to raise iron ore export tariffs; in addition, the Australian Mineral Resources Tax Act that has not yet been finally passed is also a “time lag” that has not been initiated yet.

Of these, Australia’s resource tax reforms are particularly problematic. As a matter of fact, as early as 2010, Premier Kevin Rudd had planned to levy a 40% resource super-profit tax. However, in the strong opposition of mining companies, Rudd was forced to step down. After several battles, on November 23 last year, the Australian House of Commons officially passed a 30% tax on mineral resources, which will be submitted to the upper house for voting in the first half of 2012 and will be implemented on July 1, 2012.

At present, according to domestic statistics, the quantity of Australian iron ore imported into China in 2011 was 296.68 million tons, which accounted for 43% of the total import volume in the year. The taxation of the Australian government will directly affect the production costs of China's iron and steel enterprises and can be directly transmitted to many downstream areas in China. The current Chinese steel industry is a strategic industry that involves security in many areas and employment of hundreds of thousands of people. The iron ore problem has already risen to become a problem.

In the face of this extremely complex industrial dilemma, in fact, domestic companies are also making some positive attempts. Since September last year, the North Mining Institute has communicated with the Statistics Bureau and the China Iron and Steel Association and other departments to study and launch the iron ore spot trading platform and the iron ore index. At present, the index has basically completed the construction of the trading platform. In addition, the Chinese government continues to encourage Chinese steel companies to go abroad and participate in overseas investment in mines. It also guided domestic enterprises to actively participate in the construction of shipping markets, terminals, overseas mining bases and related supporting facilities, and took measures to prevent further monopolies of mining companies on major iron ore ports and shipping routes.

Faced with the complex situation of import of iron ore mines and various unfavorable situations, the import situation of iron ore in China will surely worsen. It will seem inevitable that China's steel industry, which is already at a disadvantage, will suffer even more. “Bao Jianfeng has been grinding out and plum blossoms are coming from a bitter cold.” The best way to solve the current plight of the Chinese steel industry is to allow these companies to face international challenges and actively participate in the “big waves” of international iron ore trading, only through The survival of the fittest and the elimination of the market can gradually solve this problem. Only in this way can the Chinese steel industry embrace a true “spring”.