To pay or not to pay: That's the question Chinese iron ore
buyers have been asking since the Indian government imposed a duty
on iron ore exports effective from March 1.
If importers accept the increased price, it will cost them
millions of yuan each year; if they don't, they might miss out on
the largest iron ore cash market.
However, prices are only one thing in the minds of Chinese steel
makers, who must now reconsider their development strategies.
These steel makers have faced a plethora of problems since 2004,
when all three major iron ore suppliers India, Australia and Brazil
began demanding increasingly higher prices for long-term
contracts.
China is the greatest victim of India's new tariff, because it
imports 80 percent of India's exported iron ore. The duty was
intended to protect the country's national iron ore resources and
domestic industry.
China's iron and steel manufacturers' problems are rooted in
their dependency on imported iron ore and their irrational
expansion of capacity.
Of course, the best way for Chinese steel mills to reduce their
dependence on iron ore imports is to improve the efficiency of
their operations.
Despite the central government's tightened control of investment
in the iron and steel industry, contracted projects in the sector
still totaled 600 billion yuan by the end of last year, increasing
the risk of overcapacity in the sector.
Rather than repeatedly invest in the low end of the sector,
Chinese mills should move up the industrial chain by developing
more high-value-added iron and steel products. Doing so will also
help them offset the potential for foreign rivals to make dumping
claims.
The government should also decisively shut down smaller and less
efficient mills. At the same time, China must figure out how it can
diversify its sources of iron ore.
In addition to developing iron ore mines in China, enterprises
should also make better use of waste iron and steel.
(China Daily March 9, 2007)