MAC/20: Mines and Communities

China Update

Published by MAC on 2007-05-18


China update

18th May 2007

A UN "clean" energy project is purportedly advancing in rural China, although the evidence is currently limited to only a few sites, while private sector backing for such schemes is said to be advancing further than in the United States.

On May 15th, Chinalco (aka Chalco), China's largest integrated aluminium producer, entered a joint venture with London-listed Aricom plc, to construct a 30,000-tonnes per year titanium-sponge facility in Heilongjiang. The source will be ilmenite (mineral sands) deposits at Aricom's mines across the border in eastern Russia.

The planned output would equal the country's current titanium sponge capacity, although domestic consumption is currently only two-thirds of this. Yet - just the day before - a China Nonferrous Metals Industry Association official told Interfax news service that: "The rapid growth in investment in China's titanium sponge smelting industry over recent years [represents] as blind expansion [which] will lead to resource waste, unhealthy competition and pollution, and cause China to become a global low-price titanium sponge supplier."

Could this be yet another example of corporate practice outstripping, and indeed contradicting, emergent government policies aimed at "cooling" the economy?

The Metallurgical Mines Association of China has urged domestic iron and steel producers to forage further abroad, even as it publishes a list of current and planned mine projects which show impressive (or to some, disturbing) success in Chinese companies gaining critical resources in Peru, Brazil, Vietnam, Russia (the Chita autonmous region) and, above all, in Australia.


UN Project Cuts Carbon Emissions in Rural China

PlanetArk CHINA

17th May 2007

BEIJING - An energy efficiency project launched by Beijing and the United Nations has helped cut carbon emissions in rural China and attracted investment in energy-saving technologies.

The six-year project, due to end in August, has reduced carbon dioxide (CO2) emissions by 300,000 tonnes per year in nine pilot sites in Shaanxi, Shanxi, Sichuan and Zhejiang provinces, said a joint official statement released on Wednesday.

The pilot programme has been extended to 118 Chinese township and village enterprises, helping to reduce emissions by a total of about 2 million tonnes annually, it said.

China's Ministry of Agriculture and UN specialist agencies invested US$18.5 million in major polluting sectors in rural China -- cement, coking, brick and metal casting -- which together make up one sixth of the country's CO2 emissions.

The project has also inspired rural businesses to invest more than US$150 million of their revenue back into energy efficiency technologies, the statement said.

Township and village enterprises account for 30 percent of China's gross domestic output, it added.

REUTERS NEWS SERVICE


Europe Lags, China Catches Up in Clean Energy Race

PlanetArk GERMANY

16th May 2007

FRANKFURT - European private sector backing for clean energy technologies is slipping further behind the United States, while China is catching up, new figures show.

Innovation funding, or venture capital, gives clean energy entrepreneurs a leg-up to develop blueprints to curb pollutants, improve energy efficiency or develop new renewable energy sources.

While European Union politicians are big on climate change targets -- they recently announced ambitious greenhouse gas emissions goals to 2020 -- clean energy start-up companies risk starving for cash.

"Europe is getting kicked," said Nicholas Parker, chairman of the US-based data provider Cleantech Group, which hosted a clean energy conference in Frankfurt on Tuesday.

"Europe has technological and political leadership and public interest but a lack of capital. In the United States we have a vacuum at the federal level and then Silicon Valley," he said, referring to the Californian innovation centre.

"(California Governor Arnold) Schwarzenegger is on trade missions globally selling California as the cleantech state."

Venture capital backing of clean technologies is directly creating around 140,000 jobs annually, he estimated.

Venture capital is the first phase of funding for start-up companies which do not yet make a profit, followed later by private equity and debt finance.

European clean energy venture capital investment fell by a fifth last year to US$499 million, while in North America it nearly trebled to US$2.1 billion, according to Cleantech.

London-based analysts New Energy Finance estimate European clean energy VC backing dropped a third in 2006, versus a 44 percent rise in North America.

New Energy Finance estimates Asia last year nearly halved its gap with Europe to US$480 million for all private equity clean energy funding.

OVERHEATING

China has long been a market for western companies selling environmental technologies, as its breakneck economic growth spawns pollution problems.

But investors are also now looking at backing the local competition, said Vivek Tandon, founder of Aloe Private Equity, which helps western companies expand in Asia.

"These are not just markets to sell products into."

"Tsinghua University has 4,500 PhD students, versus 700 or 800 in a London university. These guys will have the technology to beat us hands down."

Project development is 10 times cheaper at Chinese versus British universities, he estimated.

The European funding problem may be cultural, with both investors and companies seen more cautious than US peers.

"It's risk aversion," said Parker. "Europe needs to encourage a culture of failure, allow people to fail."

Europe is much more successful at later stages of investment, for example when companies go public -- with London's Alternative Investment Market (AIM) dominating.

And ironically a growing number of funds chasing listed and more mature clean technology companies is risking a bubble, some analysts say.

Citigroup Inc., the largest US bank, last week said it planned to commit US$50 billion to environmental projects over the next decade, the biggest commitment yet from Wall Street to address climate change.

Story by Gerard Wynn

REUTERS NEWS SERVICE


Dangers ahead as China blindly expands titanium sponge smelting capacity - CNMIA official

Experts are becoming increasingly concerned over the rapid growth in investment in China's titanium sponge smelting industry over recent years, as blind expansion will lead to resource waste, unhealthy competition and pollution, and cause China to become a global low-price titanium sponge supplier, a China Nonferrous Metals Industry Association official told Interfax on May 14.

"The domestic titanium sponge industry is in something of a mess at present," CNMIA titanium, zirconium and hafnium branch official, Ma Yunfeng, said.

Titanium sponge prices on the international market have increased from RMB 50,000 ($6,516) to RMB 300,000 ($39,094) per ton since 2004, causing a nationwide boom in titanium sponge facility construction. In 2004, Zunyi Titanium Co. Ltd. and Fushun Titanium Corporation were the only two titanium sponge smelters in China. In the last two years, construction has either started or is planned to start on 30 new titanium sponge smelters, of which seven or eight have already commenced production.

"China's current titanium sponge production capacity has reached 30,000 tons per annum. Domestic demand is 20,000 tons per annum and will increase to 30,000 tons by 2010. If all planned facilities commence production, domestic capacity will eventually exceed 100,000 tons, which is the current global titanium sponge consumption," Ma said.

According to Ma, Zunyi Titanium Co. Ltd. and Fushun Titanium Corporation still remain the two largest titanium sponge smelters in China, with an output of approximately 10,000 tons and less than 5,000 tons respectively per annum.

The actual price for domestic titanium sponge is between RMB 90,000 ($11,728) and RMB 95,000 ($12,380). China's significantly lower prices compared to those on the international market at present will attract many foreign purchasers.

Ma attributes the blind titanium sponge production expansion to a lack of centralized control. At present, the industry has no state-level access standards or production licenses, with most titanium sponge projects being approved and given priority by local governments, who intend to accelerate local economic growth without regard to the overall development of the industry.

"We hope the state will take measures to regulate the titanium sponge industry," Ma said.

An overheated titanium sponge industry will increase the demand for titanium ore and although China contains one of the largest titanium reserves in the world with proven titanium dioxide reserves of 900 million tons, the competition for resources will result in the severe depletion of rich deposits.

"The state has attempted to encourage imports by setting high-titanium content slag import tariffs at zero in order to protect domestic titanium resources," Ma added.

[source: Interfax China Metals, 18 May 2007]


MMAC urges domestic steelmakers to further develop overseas mines

The Metallurgical Mines Association of China [MMAC] is urging domestic steelmakers to develop overseas mines in order to secure iron ore supplies and relieve future resource shortages in China, a senior MMAC official said on May 16.

The MMAC predicts that China's crude steel output will reach 540 million tons in 2010, which requires 430 million tons of iron ore to be imported, assuming domestic iron ore production reaches 944 million tons.

"Besides developing China's mines in a sustainable manner, domestic steelmakers should cooperate in overseas projects with both caution and long-term vision," senior MMAC official, Jiao Yushu, said at the 2007 Iron Ore Supply-Chain Summit held on May 16 in Sichuan Province's capital, Chengdu.

Since the early 1980s, many steelmakers have enthusiastically developed overseas mines, which currently supply China with 48 million tons of iron ore annually.

"Although some Chinese steelmakers developed overseas mines early on, many of the projects were low-grade and at inconvenient locations. This is the main reason behind Shougang Group's consideration over the sale of its stake in the Marcona Mine," Jiao said.

Jiao also expressed his regret over discontinued overseas joint mining projects, including CVRD's Carajas Mine, Mineracoes Brasileiras Reunidas's Capao Xavier Mine, and Australian Hancock's Hope Downs Mine and Guinea Nimba Mine, which actually have good development potential.

The Carajas Mine developed by CVRD contains 300 million tons of proven iron ore reserves grading 65 percent to 66 percent and is able to have an output of 6.5 million tons of iron ore per year. Baosteel Group, WISCO, Magang and Sinosteel all withdrew from the project due to an off-take agreement dispute.

The same Chinese companies, Baosteel Group, WISCO, Magang and Sinosteel, retreated from the Capao Xavier project due to similar reasons. The Capao Xavier mine contains 170 million tons of proven iron ore reserves at a grade of 66 percent and currently has an output of 6.67 million tons of iron ore per year.

Jiao also commented that the CISA and the MMAC should provide more help and guidance to domestic steelmakers on overseas mining, such as joint bidding for mines and how to develop railway and port infrastructure at mining sites.

"The current disorderly state of domestic steelmakers' overseas mining projects leads to unnecessarily high costs and at present, is unregulated," a MMAC official, surnamed Zou, said.

Zheng Dong, an analyst from Guoxin Securities, suggested that a better way to develop overseas mines is through joint ventures and acquisitions. He commented that steelmakers should only develop overseas mines if they are high grade, rich in reserves, easy to develop and close to seaports and railroads.

Dong added that another important factor in choosing overseas mines is the political stability of the host country, so as to ensure that steelmakers minimize the associated risks that political unrest has on overseas mining activity.

The below tables show domestic steelmakers' overseas mine joint ventures and current overseas iron ore mining projects.

Overseas iron ore mine joint ventures

Mine Location JV stake distribution Output capacity (million tons per annum)

Channar Iron Ore Mine Western Australia Hamersley 60%, Sinosteel 40% 10

Marcona Iron Ore Mine Peru Shoudu Iron and Steel Group 98.5% 7

Baovale Mineracao Brazil Baosteel Group 50%, CVRD 50% 6

Paraburdoo Australia Hamersley 54%, Baosteel Group 46% 10

Jimblebar Mine (Wheelarra Joint Venture) Australia Tangshan Iron and Steel Group 10%,WISCO 10%, Maanshan Iron and Steel Group 10%, Shagang Group 10%, Nippon Steel and Sumitomo Metal Industry 4.2%, Itochu 4.8%, and BHP 51% 12

Quy Xa Vietnam Kunming Iron and Steel Group, Vietnam 1.5-3.0

[Source: MMAC ]

Chinese steelmakers' current overseas mining projects

Project Location JV stake distribution Planned output

SINO Iron Ore Project Western Australia CITIC Pacific 40%, WISCO 40%, Tangshan Iron and Steel Group 10% and Handan Iron and Steel Group 10%

24 million tons of iron ore output per annum

Karara Iron Ore Mine Western Australia Australia Gindalbie Metal Ltd 50%, Anshan Iron and Steel Group 50%

First phase production capacity 10 million tons of iron ore; to be commissioned in 2010

Koolanooka Iron Ore Mine, Weld Range Iron Ore Mine Western Australia

Australian Midwest and Sinosteel jointly carried out initial preparation 12 million ton of iron ore per annum from Koolanooka, 15-20 million tons from Weld Range

Australasian Resources' Balmoral South Iron Ore Mine Western Australia Shougang Group's initial injection of AUD 56 million ($46.24 million ), project total investment is $1.75 billion To be settled

Mt Anketell Iron Ore Mine Western Australia Cape Lambert 30% and Delong Iron and Steel Group 70% 7.5 million tons of iron ore per annum; to be commissioned in 2010

Brezovsky Iron Ore Mine Russia Shangdong Luneng won 25-year mining rights to the iron ore deposit Chita Oblast for $38 million in May 2005.

The company will invest $494 million for the construction of two open mining pits and an ore processing plant. 10 million tons of iron ore per annum and 5 million tons of pellet; to be commissioned in 2010

[Source: MMAC and Interfax China Metals (copyright), 18 May 2007] ]

 

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