[Epoch Times December 31, 2021]In 2021, the iron ore market staged a roller coaster market. Imported iron ore climbed to an all-time high of US$233 per ton in May, and recently fluctuated around US$90 per ton. The import volume of iron ore, second only to crude oil, is the CCP’s second largest import commodity (for example, from January to October 2021, China’s cumulative iron ore imports of 933.448 million tons) have been the largest in the world since 2003 Of iron ore importing countries, the dependence on foreign iron ore has been above 80% since 2015. The price fluctuations of imported iron ore have had a serious impact on the Chinese economy. This dilemma has lasted for more than ten years, but the CCP has resolved its weakness. why? This article talks about four things.
First, it is difficult to reduce steel production capacity
In 2016, the CCP proposed a “roadmap” and “timetable” for reducing steel capacity. In the past five years, it claimed to have compressed 170 million tons of steel production capacity (including 140 million tons of “ground steel”). Although various departments and localities of the Chinese Communist Party have repeatedly chanted “resolutely reduce crude steel output and ensure that crude steel output declines year-on-year”, it is quite ironic that China’s crude steel output in 2020 set a record high of 1.059 billion tons. ; In the first half of 2021, China’s crude steel output has reached 560 million tons, a year-on-year increase of 11.8%.
Look at the stage of China’s economic development again. Although, as industrialization and urbanization are coming to an end, China’s steel output will decline after reaching its peak during the “14th Five-Year Plan” period, but from the analysis of foreign industrialization and urbanization experience and China’s actual situation, China’s steel output has been in a long period of time. Nei may maintain fluctuations in the top range, instead of immediately entering the downward channel. Some commentators said that by then the annual crude steel output will be 1 billion tons as the axis, fluctuating up and down in intervals.
Therefore, whether it is from the rigid interests of the steel industry or from the fundamentals of China’s economy, it is difficult to advance the reduction of production capacity. On December 29, the Ministry of Industry and Information Technology of the Communist Party of China stated that during the “14th Five-Year Plan” period, it will continue to consolidate the achievements of the iron and steel industry to reduce production capacity, prohibit new production capacity, and improve the long-term mechanism. This implies that the policy of reducing production capacity is in place.
Second, the development and expansion of domestic iron ore is difficult
Although steel production capacity can no longer be drastically reduced, if domestic iron ore development is expanded, scrap steel recycling is strengthened, and overseas equity ore development is accelerated, iron ore imports can also be greatly reduced. According to the China Association of Metallurgical and Mining Enterprises and the China Scrap Iron and Steel Application Association, this three-pronged approach is estimated to be compared with China’s import of 1.17 billion tons of iron ore in 2020, which is more than 80% dependent on foreign sources. At the end of the year, the import volume of iron ore will decrease by about 400 million tons, the degree of dependence on foreign countries will also drop by about 15%, and the price of imported iron ore will return to around US$80/ton. However, a detailed analysis of these three measures revealed numerous difficulties.
Let me talk about the first one. China’s 70 billion tons of iron ore resources account for 12.3% of global reserves, ranking fourth in the world. However, rich ore resources are few. The average iron content of ore is only 34.3%. Lean ore accounts for 98.8% of total ore resource reserves, which must be enriched by beneficiation. Can be used later (this process is costly). This innate factor is difficult to break through. In March 2014, the Communist Party of China launched the first “China Iron Mining Medium and Long-term Development Plan” to compile the work, proposing to increase the proportion of domestically produced mines to more than 50% in the next 10 years, and end the history of high dependence on imports for raw material supply. Now it seems that this is a joke. In the past 10 years, the average annual output of iron ore concentrates in my country was only about 280 million tons.
At the 2021 (tenth) China Iron and Steel Raw Material Market High-end Forum in November, Ju Jianhua, Director of the Department of Mineral Resources Protection and Supervision of the Ministry of Natural Resources, stated that during the “14th Five-Year Plan” period, the construction of 25 iron ore resource bases and 28 iron ore resource bases will be accelerated. The country plans to explore and develop mining areas, build a supply pattern with large and medium-sized mines as the main body, add a batch of high-quality production capacity, and stabilize the annual supply of iron ore at about 300 million tons (grade 62%). It can be seen that the authorities are not very optimistic about expanding domestic iron ore development.
Moreover, the current economic trend in China is weak and the investment intensity of the mining industry is still at a historically low level. Due to policy constraints and complex permit procedures, the construction of new large-scale mining projects has been slow, and the progress of investment continuation projects and mine technological transformation projects is not satisfactory. The CCP has repeatedly issued the policy signal of “continue to increase support for domestic iron ore development,” but it just won’t land.
Third, it is difficult to strengthen the recycling of scrap steel
Scrap steel is currently the only high-quality raw material for steel production that can gradually replace iron ore. From the perspective of the process, steelmaking can be divided into two types: long process and short process. The long process generally refers to converter steelmaking, with iron ore as the main raw material and scrap steel as a supplement: The short process generally refers to electric furnace steelmaking with scrap steel as the raw material and pig iron as a supplement, and the use of scrap steel materials can reach about 80%. China has always focused on long processes, and short-process electric furnace steel production accounted for only 10.4% (in 2020). Compared with the world average of about 30%, nearly 70% in the United States, and 50% in other regions outside of China, there is a significant gap.
However, at this stage, China’s scrap supply is far from sufficient. In addition to the huge output of converter steel, a large amount of scrap will be consumed, thus restricting the development of electric furnace steelmaking to a greater extent. For example, data shows that China’s steel reserves will reach 11.4 billion tons in 2020, and scrap supply will be about 260 million tons; during the same period, China’s steel companies will consume 230 million tons of scrap. Therefore, the “14th Five-Year Plan for Circular Economy Development” announced by the CCP on July 7, 2021 only proposes that China’s scrap steel utilization will reach 320 million tons by 2025.
In addition to scrap steel resources as the biggest bottleneck in the development of China’s electric furnace steel, electricity prices are also an important factor affecting the development of China’s electric furnace steel. In addition, China’s electric furnace technology and equipment level also needs to be greatly improved.
Therefore, the proportion of China’s electric furnace steel will only increase slowly (the official plan is to increase to more than 15% by 2025, and strive to reach 20%), and it cannot be expected to strengthen the recycling of scrap steel to greatly reduce the import of iron ore.
Fourth, it is difficult to promote the development of overseas equity mines
China’s imports of iron ore account for more than 70% of the world‘s trade volume, but it lacks pricing power. This is mainly because the international iron ore trade has formed a monopoly of sellers; at the same time, the low proportion of equity ore is also an important factor.
Japan is also a major steel producer. Before 2004, it played the role of the largest buyer in the international iron ore trade. But why didn’t Japan have such iron ore supply chain problems as the CCP? An important reason is that Japan maintains a certain degree of voice in prices through a large amount of investment and equity participation in large mines in Australia and Brazil. Today, Japanese equity mines account for more than 60% of imported mines, while China only accounts for about 8% (2020).
At the end of 2020, the Ministry of Industry and Information Technology of the Communist Party of China publicly solicited opinions on the guidance for promoting the high-quality development of the iron and steel industry, which requires: by 2025, create one or two overseas equity iron ore mines with global influence and market competitiveness, and overseas equity iron ore will account for imports. The proportion of ore exceeds 20%.
However, the world’s proven high-quality iron ore resources have almost been carved up by companies in developed countries. Only low exploration levels, poor resource conditions, large investment scales, long return periods, backward infrastructure, and high risks are left to Chinese companies. s project.
Let’s look at an example. The Simandou iron ore (Simandou) in the African country of Guinea is considered to be the most potential undeveloped iron ore in the world. According to Winning Shipping’s 2019 report, Simandou iron ore has proven reserves of more than 2.6 billion tons, potential reserves may exceed 5 billion tons, and the average iron ore grade (ie iron content) is 60% above. In June 2020, the Winning Consortium (SMB-Winning Consortium) formed by the Winning Group of Singapore and Chinese companies formally obtained the mining rights for two mining areas in the northern section of Simandou.
However, the development of Simandu Iron Mine is huge and risky. First, political risk. For example, on September 6, 2021, there was a sudden military coup in Guinea, and the current president, Alpha Conde, who had been pro-CCP, was overthrown by the military. Second, the huge investment risk. For example, to transport iron ore out, railways and ports need to be repaired, and the construction of the railway alone will cost about 23 billion U.S. dollars. The cost of these huge supporting constructions will eventually be shared in iron ore; 15% of the shares of several governments have a great impact on corporate profits; Guinea’s trade unions are active, which has a great impact on the development and production of enterprises, and so on. Again, the risk of competition. Once Simandou Iron Mine enters development and production, it will be surrounded by the world‘s four major mining giants.
Therefore, for the CCP, the development of overseas iron ore resources is extremely difficult, and it is no easy task to promote it.
Conclusion
China is the world‘s largest steel producer and consumer. China’s steel output exceeds half of the world‘s total output, which is the main reason for the world‘s steel overcapacity. The contradiction between China’s steel industry and the world is difficult to resolve.
In view of the huge volume of China’s steel production, coupled with the expansion of domestic iron ore development, strengthening of scrap steel recycling, and speeding up the development of overseas equity ore, it is difficult to make breakthroughs in the medium term. On the whole, China’s iron ore every year within five years The import volume will probably remain at about 1 billion tons, and the dilemma is difficult to solve.
More importantly, according to official data from the CCP, 60% of China’s imported iron ore originates from Australia, and the CCP is carrying out economic coercion against Australia. As a result, it can only slap itself in the face. The CCP wants to achieve diversification of iron ore imports and pin its hopes on Africa. It has been deployed for more than a decade, but progress is really limited. The Simandou iron mine currently won is also risky. Not only is it difficult to punish Australia, it may become a trap for the CCP.
From the iron ore dilemma, what people see is the decay of the CCP system, the strength of interest groups, the incompetence of strategy and the ineffectiveness of policies, and the counter-effects caused by war wolf diplomacy.
The Epoch Times
Editor in charge: Gao Yi
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