China mulls setting up iron ore group to gain bargaining power: sources

China is looking to set up an iron ore purchasing group by the end of 2022 and build distribution centers at ports, as domestic industry players seek more bargaining power in iron ore trade negotiations and supply security, industry sources said June 24.

This development, if realized, will be in line with broader industry plans to boost iron ore resources and self-sufficiency in the coming years, according to the sources.

A negotiation team led by a major aluminum producer and participants comprising steelmakers and iron ore producers would act on behalf of other steel plants to negotiate future iron ore trade with the overseas market, sources close to the situation said.

Officials from the team could not be reached. One of the members of this purchasing group is a key iron ore trader, while others own iron ore mines overseas.

The main aim of forming this group, which includes state-owned companies holding overseas mines and firms with domestic mines, is to be able to negotiate prices for major purchase volumes, opening up possible options for stable future iron ore sourcing, according to local sources.

Iron ore centers will be set up at ports in Yingkou, Rizhao and Caofeidian in North China, Zhanjiang in South China, and Ningbo in East China. These centers will be involved in allocating and blending ores, and later transporting to steel plants across China, according to a source.

China’s overseas iron ore mine — the Lobe iron ore mine in central Africa, with future annual output of around 100 million mt — will mainly serve Baowu Group, with an iron ore distribution center expected to be built at Ningbo port, supplying Shanghai Baosteel, Nanjing Meisteel and Wuhan Wusteel, according to sources.

The plans of integrated iron ore sourcing by the end of this year are in line with industry body and state goals of gaining more power in price negotiations, sources said.

China Iron & Steel Industry Association, or CISA, back in March 2021, proposed setting up a group company to secure overseas iron ore resources, a call that came in a year when iron ore prices saw a wild swing, impacting iron ore supply chains of the domestic steel sector.

In a February circular on speeding up the growth of the Chinese steel sector, China’s Ministry of Industry and Information Technology said it was aiming for unified iron ore buying to have a bigger say in iron ore price bargaining.

China has been heavily dependent on Australia for its iron ore requirements, and with trade tensions running high between the two countries since 2020, the domestic industry has been looking to find ways to secure supplies and overcome price volatility.

While China has tried to secure alternate supplies, its iron ore imports from Australia have fallen only slightly.

China’s iron ore imports from Australia in 2021 fell 2.7% from 2020, but Australia still accounted for more than 60% of China’s total imports in 2021, according to China’s customs data.

An industry observer in a recent local webinar in China said that in a bid to remove heavy reliance on one source, China has teamed up with Mongolia, Russia, Brazil and Kazakhstan for iron ore sourcing, but this group is too wide, so there is a need to integrate iron ore buying and gain an edge in sourcing.

Varied reactions
Industry players in China have varied views around forming a group targeted at collective price bargaining, with some noting that price stability would not be the sole reason to make decisions to buy iron ore.

Shenzhen-listed Hualing Steel recently said it already has a centralized iron-ore buying unit for its steel subsidiaries, but it would not just look at prices to buy iron ore, noting low-priced but bad quality cargoes could negatively impact its production and costs.

An East-China based producer said it has mainly imported iron ore by itself or sourced from its parent company and has no plans of uniting other steel plants in Northeast China to source iron ore.
What’s ahead?

Meanwhile, the CISA recently revised up its 2025 target of newly-added domestic iron ore output in China, to 100 million mt from a previous estimate of 50 million mt.

For overall domestic iron ore output, the CISA is estimating it would reach 370 million mt by 2025, 100 million mt more than the previous estimate.
Similarly, by 2025, steel scrap usage is estimated at 300 million mt, up 70 million mt from a previous estimate, and iron ore supplies from Chinese companies’ stake in overseas mines is estimated at 220 million mt, according to the CISA.

Authorities have urged China’s steel sector to use more steel scrap to save iron ore resources, a call in line with the country’s twin policy of energy and emission controls.

Based on estimated 2025 Chinese crude steel output of 1.065 billion mt, domestic iron ore and steel scrap could contribute 21% and 26% of feedstocks for the steel sector, respectively, up 6 percentage points from 2020, easing the reliance on ore imports, according to the CISA.
Source: Platts