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

Thu Mar 2, 2017 9:21am EST
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By Manolo Serapio Jr

MANILA (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: Quote), Rio Tinto (RIO.AX: Quote)(RIO.L: Quote) and BHP Billiton (BHP.AX: Quote)(BLT.L: Quote), 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: Quote). 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.


An employee monitors molten iron being poured into a container at a steel plant in Hefei, Anhui province September 9, 2013.  REUTERS/Stringer/File Photo