China Steelmakers Look To Secure Iron Ore Supply
Dec/06/2009 | Under Companies - Exploration - Iron Ore Mine
Moves aimed at reducing reliance on imported ore for steelmaking. With a proposed joint venture between the number two and three iron ore suppliers looking more likely, Chinese steelmakers are working furiously to secure their own ore supply by buying smaller iron ore firms or expanding mining capacity domestically.
This week Brazilian iron ore miner MMX said it will sell more than 20% of its capital to China’s Wuhan Iron and Steel Co. for $400 million. According to Reuters, the deal between Wuhan and MMX includes a 20-year supply contract for ore under which MMX will provide 50% of the iron ore coming from its Serra Azul mine, with the option of supplying 50% of the ore from its Bom Sucesso mine in the future, to Wuhan. The deal also includes an agreement to build a steel mill at the Porto do Acu in Brazil, a port terminal controlled by LLX.
And Bloomberg reports this morning that Burwill Holdings, a Hong Kong-based steel trader, plans to triple the production capacity of a Chinese iron ore mine it agreed to buy last month on expectations prices will rise at least 15% next year. Burwill officials told Bloomberg it will boost the iron ore capacity of the Shandong province mine to 3 million metric tons a year by 2012, from an expected 1 million tons next year.
Also this week, China’s second largest steel producer the Anshan Iron and Steel Group Corp. (Ansteel) and Australian iron ore producer Gindalbie Metals broke ground on a new Karara iron ore project developed under a 50/50 joint venture. According to a statement, the joint venture includes plans to build a pellet plant near the site of Ansteel’s new steelmaking facility in China.
The flurry of moves to secure iron ore supply come as a proposed joint venture between BHP Billiton and Rio Tinto for supplying ore from Australia appears to be on track to meet a targeted benchmark this week for submitting plans to regulators before closing sometime in mid-2010. Reuters reports that the two firms have a December 5 deadline for a binding agreement on the joint venture.
“If this BHP-Rio joint venture goes ahead, the Chinese will feel even more under threat,” Peter Chilton of Constellation Capital Management in Sydney told Bloomberg. “There are a lot of small projects on the go. If China takes more direct control of these and promotes them with an Australian partner or on their own, at least it guarantees them extra supply.”