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Majority of China's iron ore mining capacity incurring losses
SHIJIAZHUANG, March 27, 2015:
Three-quarters of China’s domestic iron ore capacity is incurring losses, an industry official said today, as a sustained slump in the price of the steel making commodity batters higher cost producers.
The price of iron ore has more than halved in the past 12 months amid a supply glut deepened by soaring output from low-cost mega miners from Australia and Brazil squeezing smaller suppliers out of the market.
The commodity hit a record low of US$54.20 (RM198.75) a tonne this week.
The capacity utilisation rates at small Chinese iron ore mines dropped to as low as 20% at the end of last year, Yang Jiasheng, chairman of the Metallurgical Mines Association of China, told an industry conference.
“If there are some small loss-making iron ore producers that are forced to close then this will be a good thing for the market,” he said, adding that bigger producers would also have to restructure and cut costs.
Yang said that many iron ore miners had kept output at last year’s levels and in some cases even increased it, adding the sector should examine how to respond better to market changes.
But he said the state needed to recognise the strategic importance of iron ore and ensure there was enough support to maintain a certain level of self-sufficiency.
China’s industry ministry has agreed in principle to reduce the tax burden on domestic miners, currently at about 25%, said Yang. That compares to an 8% tax for Australian iron ore miners.
Only about 3% of China’s 4,037 iron ore mines are large scale, with the rest mostly small, said Yang. China is the world’s biggest iron ore producer in terms of raw ore, but buys about two-thirds of global output because of the low quality of its own ore.
The country’s iron ore imports climbed 14% to a record 932.7 million tonnes last year as a price slump boosted appetite for high-quality ore overseas.
In contrast, apparent consumption of China’s domestic iron ore fell to 205.86 million tonnes last year from 313.8 million tonnes in 2013, despite an increase in overall production volumes, data from consultancy Custeel showed.
Rio Tinto, the world’s second-biggest iron ore miner, expects some 85 million tonnes of iron ore capacity to be taken out of the world market in 2015 on top of an estimated 125 million tonnes last year.
Chinese mines will absorb most of the losses, Rio Tinto iron ore chief Andrew Harding had said.
