MAC/20: Mines and Communities

China update

Published by MAC on 2007-03-02

China update

2nd March 2007

In line with the recent decision to shut down small coal -fired power plants, the Chinese regime is now ordering the closure of all small cement plants . The laudable aim is to cut energy consumption and pollution. But, of course, this will depend on reducing high-carbon or toxic fuel inputs into the plants which continue to operate. China is both the world's biggest producer and consumer of cement.

Meanwhile, small-scale steelmakers in the country are facing a possible drought in supplies of cheap iron ore and concentrates from India, as China's neighbour announces a hike in export duties in order to "conserve" its own "scarce natural resources."

The bigger Chinese steel producers don't seem too worried at this prospect. Most of their supplies are tied up in long term contracts with the huge Australian and Brazilian-based mining companies, CVRD-Inco, Rio Tinto and BHPBilliton.

China Orders Small Cement Plants to be Closed

Planet Ark CHINA

2nd March 2007

BEIJING - China is planning to shut down small cement plants across the country over the next two years, as the latest step in its efforts to improve energy efficiency, combat pollution and upgrade its industry.

The National Development and Reform Commission (NDRC), the powerful economic planning agency, said in a recent notice that provincial governments would be required to shut all cement plants with annual capacity of less than 200,000 tons by the end of 2008. The notice was published on several industry Web sites.

Overall, the NDRC plans to eliminate 250 million tonnes in outdated cement capacity by 2010 as a way of contributing to the nation's targets for cutting energy consumption and pollution during that time period, it said.

China aims to reduce emissions of pollutants by 10 percent -- and the amount of energy required to generate each unit of gross domestic product by 20 percent -- between 2006 and 2010.

But so far it has been lagging on those targets. China managed to cut its energy consumption per unit of GDP only by 1.23 percent in 2006 -- well below the 4 percent drop it was seeking. It also missed its target of reducing emissions of pollutants by 2 percent last year.

The NDRC fixed quotas of cement capacity reductions for each province and region, other than for the municipalities of Beijing and Shanghai.

For instance, the northern province of Hebei will have to close 15 million tonnes of capacity by the end of 2008 and another 12 million tonnes by the end of 2010.

The agency said provincial officials would have to sign agreements with the central government holding them accountable for the required targets; they in turn would determine specific steps to be taken by officials at the county level.

The NDRC said it would carry out inspections around the country to ensure compliance, and that provincial governments found to be defying the orders would be referred to the State Council, or cabinet, for potential disciplinary action.

Local officials, keen to deliver economic growth to their jurisdictions, have often ignored such edicts from central planners, but Beijing has begun cracking down -- for instance by naming and shaming officials who approve unauthorised projects.


India imposes iron ore export duty $6.78 per ton, possible impact on China's imports

The Indian government has increased the export duty on iron ore and concentrate by Rs. 300 ($6.78) per ton, a move that could hurt China's Indian iron ore imports, industry insiders said on March 1.

The new policy was announced on Feb. 28 by India's Union Finance Minister Shri P Chidambaram, and is regarded as the first move by the Indian government to conserve scarce national resources.

"It is shocking news to domestic steel mills," said trader surnamed Ding with Hong Kong Pioneer Metals Co. Ltd, one of largest iron ore traders in mainland China, "We were informed by our Indian suppliers on Feb. 28 night that the policy was to take immediate effect, Indian iron ore suddenly had no price advantage over Brazilian and Australian ores."

According to Ding, Pioneer Metals has been forced to temporarily halt all iron ore sales, domestic steel mills being unwilling to accept such a sudden price hike.

The company has even halted iron ore imports from Australia and Brazil, due to a dramatic surge in orders from domestic steel mills for Australian and Brazilian iron ore. He is also concerned that the new export duty will cause a price hike in iron ore spot prices from the two countries.

China's Indian iron ore imports surged 9 percent to 74.75 million tons in 2006, an increase of $4.83 billion, according to statistics released by the General Administration of Customs.

Zhang Dongliang, analyst with steel consultancy Shanghai Mysteel, predicts that Indian iron ore imports will decrease significantly and there will be a hike in domestic iron ore prices. However, there has been no domestic market reaction to the policy so far .

An analyst with Shanghai Haitong Securities named Gu Yaoqing said India's move is designed to favor domestic steel mills, and to shrink India's share in the global iron ore market, especially in China.

India was the third largest exporter of iron ore and concentrate to China last year, accounting for 23 percent of total imports, behind Australia and Brazil.

"Australia and Brazil are apparently expanding production and competing to gain a greater share in the Chinese market," he said.

Gu stated that pig iron production costs would increase by at least RMB 80 ($10.34) per ton if steel mills use Indian iron ore, but such a cost increase would have little impact on steel product prices.

"In any case, large-scale steel mills will be little affected by the policy, their supplies are already fixed long term with Australian and Brazilian mines. However, small-scale steelmakers have to rely on Indian iron ore, since they have not secured long term contracts from Australian or Brazilian suppliers," he said.

Pioneer Metals' Ding also believes that Indian business trade will resume shortly, as Indian iron ore imports are both less time consuming and lower in freight charges.

"We will negotiate with Indian suppliers to lower the FOB price so as to offset the recent price increase," he added.

Currently, the CIF price of 63.5 percent Indian iron ore concentrate, the most prevailing type in Chinese market, is $84-85 per ton.

[Source: Interfax China Metals, 2 March 2007]


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