Li Xinchuang: The Chinese iron ore industry faces a situation characterized by five long-standing challenges.
2016-12-12
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At the “2016 (5th) China Steel Raw Materials Market High-Level Forum” held on December 10, Li Xinchuang, President of the Metallurgical Industry Planning Institute, delivered a keynote address titled “Global Iron Ore Market Analysis and Outlook.” In his presentation, President Li outlined five major trends shaping China’s iron ore industry, noting that these trends are likely to persist over the long term.
(1) International iron ore trade is highly concentrated, and a supply-over-demand situation is likely to persist for an extended period.
In 2016, the four major mining companies will increase production by 50 million tonnes. Looking ahead, the full‑scale commissioning of the Roy Hill and Vale projects, along with capacity expansions at other sites, will further exacerbate market oversupply. Meanwhile, China—by far the largest consumer of iron ore—is undergoing a shift toward reduced‑volume steel production, meaning that iron‑ore demand is on a clear downward trajectory. In the short term, no other country or region is likely to offset the slowdown in Chinese demand. Consequently, on a global scale, the imbalance between supply and demand—characterized by oversupply—will persist for the foreseeable future.
(II) China’s heavy reliance on imported iron ore will persist in the long term.
The average production cost of domestically prioritized iron ore stands at around US$80 per ton, nearly two to three times the production costs of major international iron ore producers, resulting in relatively weak market competitiveness. Meanwhile, even as China’s steel industry transitions to a phase of reduced output, it will continue to operate at high levels, sustaining substantial demand for iron ore. By 2030, China’s dependence on imported iron ore is expected to remain above 85%.
(3) Low‑level price volatility in the iron ore market is likely to persist over the long term.
Against the backdrop of a persistent oversupply in the iron ore market, amid a trend toward reduced steel production, and with the ongoing consolidation of the steel industry, iron ore prices are likely to remain within a reasonable range, trading in a low‑level, volatile pattern.
In the short term, the oversupply situation is unlikely to undergo any substantial change, with iron ore prices expected to fluctuate between $50 and $70 per ton. In the medium to long term, prices may rise, but they are unlikely to return to the high levels seen in previous years. By the end of the 13th Five-Year Plan period, iron ore prices are projected to remain broadly within the $55–$75 per ton range.
(4) Prominent resource and environmental constraints will persist over the long term.
As the national economy enters the “new normal,” particularly during the 13th Five-Year Plan period, with the implementation of the “five-sphere integrated plan” and the “four-pronged comprehensive strategy,” the new Environmental Protection Law and increasingly stringent energy policies are tightening the operating environment for iron ore enterprises. Consequently, the conflict between resource development and environmental constraints is becoming more pronounced and is likely to persist over the long term.
(5) The trend of scrap steel gradually replacing iron ore will persist over the long term.
China’s scrap steel output has already reached a considerable scale. Over the next 5 to 15 years, scrap steel production is expected to accelerate, while crude steel output is likely to trend downward. Consequently, scrap steel will increasingly serve as an important complement to iron ore resources. As a result, the share of scrap steel replacing iron ore is projected to rise overall.
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