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Chinese steel mills diversifying sources for iron ore supply

Indian iron ore spot prices in recent days kept surging due to iron ore supply shortage in the market, triggered by the news about Indian government hiking iron ore exports duty, flooding situation in Australia, Iran also contemplating 50% duty tax on iron ore fines and 35% on pellet exports.

With the expectation of housing project, railway project and underground projects undertaking in 2011 and many experts believe the Chinese steel demand will continue to see rapid growth in the next few years. The supply of the main source for steelmaking, iron ore has long been controlled by the three major supplying countries, Brazil, Australia and India. It has become a serious concern that China needs to diversify the sources of iron ore supply in the future in order to secure the necessary resources for the steel industry.

In fact, the recent data from China Custom have revealed the efforts. China imported 617 million tonnes of iron ore in 2010, down 1.4% than the previous year.

However, imports from smaller miners have showed significant growth in the past year. Between January to November in 2010, China imported 6.68 million tonnes of iron ore from Peru up by 22%, 4.41 million tonnes from Venezuela up by 77%, 12.88 million tonnes from Iran, up by 128%, 6.9 million tonnes from Indonesia up by 19%, 1.84 million tonnes from North Korea up by 167%, 1.72 million tonnes from Vietnam up by 10% and 6.10 million tonnes from Chile up by 17%.

Apparently, the surging iron ore spot prices and profitability of iron ore encourage smaller suppliers to jump into the iron ore market, thus pushing the imports from these countries to go up. Meanwhile, the overall decreasing in total imports and increasing amount from non-traditional iron ore suppliers indicated the Brazil, Australia and India market share have dropped in 2010.

Analysts pointed out that their market shares drops might be result from the economic recovery in Europe market and Vale have distributed quite a great deal of stock to the region. Traders revealed that importing iron ore from the major suppliers meant accepting the high cost at the market, and importing from smaller miners could mean the prices could be more flexible and thus more attractive.

The high iron ore spot prices have been pushing the index base quarterly contract prices to go up in the quarter one of 2011 as well. Sensing the huge demand from Chinese steel industry, major supplier like Rio, BHP and Vale have planned to expand production in 2011 and the onwards years.

(Sourced from MySteel.net)

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