NEWS ANALYSIS: Irony of China’s iron-ore miners seeking protection

THERE is something of a delicious irony in China’s iron-ore miners complaining of dumping by foreign producers, but what it really underscores is the multitude of challenges facing the world’s biggest steel industry.

The miners want an antidumping investigation into iron ore imported from the world’s top suppliers, complaining that low-cost majors — Vale, and Rio Tinto and BHP Billiton — are flooding the market.

“A huge volume of low-priced imported iron ore has had a severe impact on the domestic mining industry and even posed a big challenge for the security of steel production,” more than 20 Chinese miners say in a statement on the website of the Metallurgical Miners’ Association of China.

The call for protection from foreign miners comes against a backdrop of increasing antidumping measures on Chinese steel in Europe, India and the US.

It is far from clear that protecting domestic miners would actually help China’s steel sector, which accounts for about half the world’s total production.

Antidumping tariffs on iron ore would serve only to raise the cost of producing Chinese steel, rendering it less competitive in export markets as well as potentially hurting domestic demand growth.

There is also be some doubt as to whether a credible case of dumping can be made against the big three miners, given their success in driving down costs. Both Rio Tinto and BHP Billiton are able to get a tonne of ore delivered to ports in Western Australia state for about $13, meaning that even once royalties, freight and other costs are added, they are still making a healthy profit at current prices.

If it is not ironic enough that China’s iron-ore miners are crying for protection, then the recent jump in spot iron-ore prices adds another dimension. The steel index spot iron-ore price jumped 2.9% on Tuesday to $57.40 a tonne, helped by the news of the call for antidumping measures.

However, the risk is that the brouhaha over antidumping measures deflects from the real issues in China’s steel sector: overcapacity and profitability.

China managed to cut only 13-million tonnes of steel making capacity in the first half of 2016. This was less than a third of the annual target and shows the difficulties in shutting down mills.

Feng Fei, the industry deputy minister, is confident the full-year target of 45-million tonnes can be met. It is the first year of capacity cuts that are planned to reach a total of 140-million tonnes over the next five years. Given that China’s total capacity is about 1.13-billion tonnes a year and production is 800-million tonnes, it is clear that cuts of even 140-million tonnes are unlikely to be enough to put the sector on a healthy footing.

It shows just how much of a challenge the authorities face in their bid to return the sector to sustained profitability while minimising the impact of job losses.

Part of that struggle can be seen in what appears to be a forced marriage between listed units of Baosteel, China’s second-largest steel maker, and Wuhan Iron and Steel Group, the sixth largest.

Baosteel is one of the most modern and efficient Chinese producers, while Wuhan Steel is one of the biggest laggards. A forced merger would make sense only if it results in Wuhan Steel’s older and less efficient mills being closed, but there is no guarantee this will happen.

Overall, the key for the global steel sector is how quickly and successfully China restructures its own industry.




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