China: Rise in price of Brazilian iron speeds up restructuring of steel sector in China

3 March 2008

Beijing, China, 3 March – The 65 percent rise in the price of iron ore that Brazilian mining company Vale last week managed to negotiate with the Chinese market is speeding up the restructuring of the sector in China, with a new focus on ore prospecting in China’s interior.

The price of iron ore, the second largest Brazilian export to China after soy, has seen an explosion over the last few years, due mainly to increased Chinese and Indian demand.

Vale is the main vehicle for Brazilian exports of iron ore to China. According to the Chinese Trade Ministry, Brazilian iron ore exports to China exceeded 100 million tons for the first time in 2007, a rise of 6 percent against 2006.

The increase in the price for which Vale sells its iron ore to China led the Chinese government, after a 10 year break, to return to its focus on prospecting for iron, with the Land and Natural Resources Ministry set to launch a geological survey program.

“We are mainly going to focus on surveys in the west and central regions of the country in an effort to increase iron ore reserves,” said deputy minister for Land and Natural Resources, Wang Min, cited by the People’s Daily, the official newspaper of the Chinese Communist Party.

The geological survey teams brought an end to prospecting work in the 1990w, as at the time the Chinese government thought that reserves were sufficient for the next 300 years, based on levels of demand at the time.

Since then, the enormous level of economic growth in China has altered the forecasts and Wang Min said that “Chinese reserves are diminishing,” despite still being 60.7 billion tons.

The Chinese government believes that country has at least 100 billion tons of non-proven reserves, based on 1,756 prospecting projects that China has carried out since 2004, Wang Min said.

In 2006 and 2007, the country discovered 187 iron ore deposits with proven reserves of 3.2 billion tons.

According to industry provisions, the demand for steel in China in 2008 is expected to rise by 12 percent against 2007, to around 490 million tons, with the Chinese association of Iron and Steel expecting a rise of 6 percent in Chinese production, to 520 million tons.

Brazil is the third-largest supplier of iron ore to China, which is the world’s largest consumer of the resource, and is responsible for over 40 percent of global imports. (macauhub)