The Qin Emperor’s tomb is perhaps best known for its Terracotta Warriors. Less famous, is a 90cm iron sword. After 2,200 years it still has not rusted; having been expertly oxidized with chromium.
The Chinese metal industry has evidently been around for a while but now more than ever it finds itself facing unprecedented media attention.
Regular readers of WiC will recall that in issue 14 (published in early May) we drew attention to a huge iron ore deposit that had been discovered near the city of Benxi.
The source of this initial story was a small item in People’s Daily, which reported that the find suggested almost 2 billion tonnes of iron ore lay beneath. Almost two months later, the story broke in the international media, and stocks such as Baoshan Iron and Steel rose as a result.
What had changed? New reports had confirmed that the find was actually much bigger: at least 3 billion tonnes, or perhaps more. Indeed, the China Securities Journal quoted a scientific study that projected the reserve could be as large as 7.6 billion tonnes.
In late June China’s government sources made sure these statistics became better known. The reason was simple: it hoped that it might help in the country’s increasingly deadlocked (and fractious) negotiation with Brazilian and Australian miners over the price of iron ore.
The minister of land and resources, Xu Shaoshi told media that if the iron ore find in Liaoning province could help China negotiate a price reduction of even one dollar (per tonne), it would cut the import costs of the nation’s steel mills by $500 million.
But the negotiating tactic doesn’t seem to have worked. The first iron ore won’t be recovered from the Liaoning mega-mine – located in the town of Dataigou – till 2015. And China needs ore now.
In the meantime steelmakers have been paying a spot price of above $80 per tonne – hoping Rio Tinto, BHP Billiton and Vale will agree to 45% price cuts on longer term contracts.
Meanwhile, the Japanese and Korean mills have already agreed to a 33% cut. And according to China Business News, some Chinese steelmakers may have agreed too.
But not so fast. China Daily yesterday denied any deal has been struck, stating the country’s second biggest steel firm, Hebei Iron and Steel Group had refuted the claim.
So the impasse continues…
And that mega-mine? To get iron ore out of Dataigou will require drilling to 1,300 metres and investing Rmb2.5 billion. However, if the mine really does contain 7.6 billion tonnes of ore, it could choke off China’s need for imports for up to 15 years.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.