Back from the dead? Chinese iron ore miners plot return as prices surge

Valecha Engineering

02/03/2017 23:00

(Repeats item published on March 2, no changes in text) 
    * Iron ore price nearly doubles in a year, closing in on 
$100/T 
    * Pickup in Chinese iron ore output may hit marginal 
suppliers 
    * No immediate threat seen for top miners Vale, Rio, BHP 
 
    By Manolo Serapio Jr 
    MANILA, March 2 (Reuters) - Rocketing iron ore prices may 
prompt Chinese producers to reopen mines shuttered years ago in 
a sector downturn, potentially tightening the market for 
marginal foreign suppliers to the world's biggest importing 
country, industry executives say. 
    A revival could help Chinese steel mills cut raw material 
import costs, boosting margins amid rising steel prices. If more 
domestic ore is produced, mills could also use that as leverage 
to push for better deals on seaborne imports from top suppliers 
like Vale  VALE5.SA , Rio Tinto  RIO.AX  RIO.L  and BHP Billiton 
 BHP.AX  BLT.L , traders say.    
    A booming Chinese steel market pushed iron ore 
 .IO62-CNO=MB  to $94.86 a tonne last month, its strongest since 
August 2014. With Beijing expected to boost infrastructure 
spending, the raw material looks set to rally further, making 
domestic production more viable.  
    "Quite a few Chinese iron ore miners are planning to come 
back and reopen their mines," said Pan Guocheng, head of 
medium-sized miner China Hanking Holdings Ltd  3788.HK . While 
low prices led to closure of more than a third of China's iron 
ore capacity since 2013, Pan expects nearly half of those mines 
to restart - if the price stays above $80 for another six 
months.      
    Hanking is now considering restarting one of three mines it 
closed when times were leaner. "If the price will stay high," 
said Pan, "we are going to seriously re-evaluate if that mine 
should be reopened."  
    A wave of mine reopenings won't present any immediate threat 
to Vale, Rio Tinto and BHP Billiton, giants that supply 
top-grade material that's an essential element of the input mix 
used in steel mill blast furnaces. 
    What's more, Beijing's tighter environmental rules could 
make life difficult for returning mines, analysts have warned.   
  
     
    BARGAINING CHIP 
    Raw Chinese iron ore only has iron content of about 20 
percent, compared to more than 60 percent mined by Vale, Rio and 
BHP. But processed Chinese ore can go up to 66 percent. 
    Some mills prefer to use the best grades of Chinese iron ore 
they can find, rather than lower grade material from overseas. 
    "We are looking to get more local iron ore but we cannot 
find a lot of it now," said an official from a steel mill in 
southeastern China, speaking on condition of anonymity because 
he was not authorised to speak to media. "I think they're just 
preparing to restart." 
    Hanking's Pan said China's best grade ores are competitive 
with lower grade material from Australia, like those shipped by 
Fortescue Metals Group  FMG.AX . 
    But inland Chinese mills buy Fortescue's ore to blend with 
domestic high-grade ore, Fortescue Chief Executive Nev Power 
said. "Demand...remains strong and we are making very strong 
margins at the prevailing market price," Power told Reuters by 
email. 
    Nonetheless, traders are betting that if more domestic 
high-grade iron ore is produced, Chinese mills could use it as 
bargaining chip with foreign suppliers.  
    "Mills may use it as leverage - if imported price is too 
high they will shift to domestic ore," said one Shanghai-based 
trader who declined to be identified.      
 
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GRAPHIC: Rising iron ore prices lure back shuttered Chinese 
miners    http://reut.rs/2luIQJA 
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 (Reporting by Manolo Serapio Jr.; Editing by Kenneth Maxwell) 
 ((manolo.serapio@tr.com; +632 841 8972; Reuters Messaging: 
manolo.serapio.thomsonreuters.com@reuters.net Twitter: 
@MannySerapio)) 
 
Keywords: CHINA IRONORE/