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Iron Ore Reserves Run Short
Although the increasing oil shortage is focusing most worries on China's energy security, industrial insiders have raised concerns about dwindling resources for steel production.
Insiders said the steel industry, a traditional pillar of the country's economy along with the oil industry, suffers from a mounting iron ore shortage.
The shortage has curbed the sector's sustainable development, they said.
Pu Haiqing, director of the State Administration of Metallurgical Industry, has called on Chinese steel makers to launch iron ore bases abroad to fill the gap in domestic demand.
Energy experts have advocated to establish similar oil bases abroad as soon as possible to help out domestic oil resources.
Analysts said the launch of reliable iron ore bases is a pressing task for the steel sector, although the urgency for it is not so great as for the country's oil supply.
"The launch is a long-term strategy instead of an expedient for the steel sector," Pu said.
Shrinking domestic iron ore reserves have seriously undermined the steel sector's efforts in cost reduction and improving the product mix, he said.
Imported high-tenor iron ores are indispensable for steel enterprises struggling to reduce costs and make more high-grade products to meet domestic demand.
China has had to import more than 10 million tons of high-grade steel products, although it has been the world's largest steel producer with output exceeding 100 million tons since 1996.
The country now has less than 18 billion tons of exploitable iron ore reserves with a tenor below 30 per cent. Pu estimated the reserves can satisfy domestic demand for only 40 years.
To add to the troubles, many domestic steel enterprises prefer to use imported high-tenor iron ores instead of expanding exploration at home.
Domestic iron ore exploration costs more than buying imports.
Pu predicted that in the future the country will depend even more heavily on imported iron ores.
"China will import about 80 million tons of iron ores in 2005 from 60.2 million tons last year," he said.
Administration sources indicated that iron ore imports amounted to 45.7 million tons during the first eight months of this year, an increase of 39 per cent over that of the same period last year.
The Shanghai-based Baoshan Iron and Steel Corp, the country's biggest steel maker, imports about 15 million tons of iron ores each year from Australia, Brazil, South Africa and India, which are world high-tenor iron ore bonanzas.
In fact, the Chinese Government has set out to establish iron ore depots in resource-rich countries since the 1980s.
The State has built up a base in Australia with an annual iron ore production capacity of approximately 10 million tons.
The Baoshan steel firm is also conducting a feasibility study to launch an iron ore base with its own money in the country.
"Domestic steel enterprises should strengthen their co-operation when launching iron ore bases abroad," Pu said.
Wu Xichun, president of China Iron and Steel Association, urged domestic steel makers to study how to best launch resource bases abroad and to resolve problems related to iron ore transportation, loading and distribution.
"They should learn more from the industrialized nations which have established integral iron ore supply systems," Wu said.
Launching foreign iron ore bases is a common practice in developed countries, especially those which have meager iron ore resources.
Japan, the world's biggest iron ore importer, has been engaged in the exploration of iron ores abroad since the 1960s and has built up reliable resource bases. The country consumes 120 million tons of iron ores from other countries each year.
Western European nations also attache great importance to the construction of foreign iron ore depots and imports approximately 140 million tons annually.
In addition to the direct launch of foreign bases, Chinese steel makers may buy foreign iron ores through long-term trade agreements with resource-rich nations, said Liu Jinghai, deputy director of the China Metallurgical Economic Development and Research Centre.
"Such a shift in resource supply will therefore lead the steel sector to adjust its layout," Liu told China Daily.
Steel enterprises in coastal areas which have favourable material transportation will benefit from the low cost, and those in hinterland will feel more pressure, he said.
Average transport cost for imported iron ores of the Wuhan Iron and Steel Corp in Central China's Hubei Province is 100 yuan (US$12) per ton higher than that of the Baoshan steel firm.
"Although such a situation will not escalate overnight, the adjustment is inevitable," Liu said.
The central government has recognized the importance of the steel industry adjustment.
The iron and steel administration, the sector's watchdog, has proposed to shift more steel production to the coast and areas which facilitate iron ore imports during the approaching 10th Five-Year Plan period (2001-05).
The industry is expected to accelerate its re-organization to form more steel conglomerates during the period to make full use of iron ores.
The administration also will phase out more small, low-level steel plants to save limited domestic iron ore resources and ensure product quality.
By the end of this year, more than 100 small steel plants are to be closed. [Source: chinadaily.com.cn]
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