China Paying a Premium in Iron Ore Drive 中国不惜代价推动实现铁矿石自给自足

By newsdoug on July 20, 2011

China's pricey drive for iron ore independence Two developments this week in the steel sector highlight how China’s determination to achieve self-sufficiency in iron ore procurement won’t be easy or cheap, as Beijing tries to free itself from dependence on the global trio of Rio Tinto (London: RIO), Vale (NYSE: VALE) and BHP Billiton (Sydney: BHP). In the first of the developments, private conglomerate Sichuan Hanlong has been rebuffed in its $1.9 billion bid to take over all of Australia’s Sundance Resources (Sydney: SDL), in which it already owns a 19 percent stake. (English article) In this case, Sundance clearly realizes that China wants to secure more iron ore assets, and is trying to extort more money from Beijing, even after Hanlong offered a 25 percent premium to Sundance’s last closing price before the offer was announced. In the second case, conglomerate Citic Pacific (HKEx: 267) saw its Hong Kong-listed shares tumble 9 percent earlier this week after it announced disappointing progress on an iron ore project in Australia, including an additional $900 million development expense. (company announcemen t) These two developments need to be seen in the broader context of China’s determination to free itself from the Rio/Vale/BHP oligopoly, which constantly frustrates Chinese steel makers with what Beijng sees as unreasonable price hikes for iron ore each year. (previous post) Of course, there’s no guarantee that these new projects will produce iron ore at prices any cheaper than global market prices, especially with the kinds of cost overruns and premiums we’re seeing in these latest deals. But when China makes up its mind on something like this, there’s little that anyone can do except to watch, which could end up hurting China’s iron ore producers and steel makers if they have to pay more for pricey domestically developed ore.

Bottom line: China’s determination to achieve iron ore self sufficiency at any cost could become a burden to its ore and steel producers, and an opportunity for owners of overseas iron ore assets.

钢铁行业本周的两起动态凸显出中国实现铁矿石自给自足将不易，中国正试图摆脱对力拓(RIO.L)、淡水河谷(VALE5.SA)和必和必拓(BHP.AX)这三家矿业巨头的依赖。首先是，私营企业四川汉龙拟19亿美元收购澳大利亚矿商Sundance Resources(SDL.AX)的全部股份，但收购计划遭拒。汉龙已持有Sundance19%的股份。在该案例中，Sundance显然意识到中国希望获得更多的铁矿石资产，因而试图从中国身上榨取更多钱财。此前，汉龙提出的收购价较Sundance上日收盘价溢价约25%。第二则新闻是，因中信泰富(0267.HK)澳大利亚铁矿石项目进展令人失望，加上严重超支，该公司股价本周早些时候重挫9%。这两则行业动态都应放在中国决心摆脱对铁矿石三巨头依赖这一大背景下来看。每年中国钢铁企业谈判新的供应合同时，海外主导地位都让北京痛苦不已，铁矿石成本逐年攀升。当然，谁也不能保证这些新项目所生产的铁矿石价格会低于国际市场价格，尤其是考虑到我们在最近的交易中所看到的成本超支和溢价。但当中国在这样的事情上下定决心时，我们只有观望。如果中国的铁矿石生产商和钢企最终却要为国内生产的铁矿石付出更高代价，终会令其受伤。

一句话：中国不惜任何代价希望实现铁矿石自给自足的决心可能会成为铁矿石和钢铁生产商的一个负担，也给了海外铁矿石资产所有者一个机会。