About a third of China's iron ore mines have halted production and this could rise as high as 45 percent by the end of the year if the price of the steelmaking raw material stays below $70 a tonne, a local mining executive said on Thursday. "I think this is going to get worse and worse," Pan Guocheng, president of the China Hanking Group, told an industry conference in Beijing.
Pan said about a third of China's miners had stopped production by January, with current production at about 70 percent of total capacity. According to Morgan Stanley, 52 million tonnes of Chinese output was eliminated last year, taking the county's total production last year to about 345 million tonnes. The China Iron & Steel Association said China's iron ore supply is likely to fall by 70 million tonnes this year and imports rise 7.1 percent to reach 1 billion tonnes for the first time.
A controversial strategy by mining giants Vale, BHP Billiton and Rio Tinto to saturate the Chinese market with imported ore to drive out local miners has driven prices down by more than half in the last year. China has a large number of small private iron ore mines with low efficiency, making them uncompetitive compared with top miners. State-owned iron ore miners are likely to be more resilient due to their lower cost and a desire to maintain employment.
"There has been a clear split between state-owned and private mines. The private guys are out to make a quick buck and have shut down very quickly. The state ones are not so elastic," Ian Roper, commodity strategist of CLSA told the conference. Some private operators are surviving by concentrating their ore and selling it for higher prices, Pan told Reuters. The average grade of China's domestic iron ore fell to 20.7 percent last year from 31.2 percent in 2013 and average costs rose about 4 percent from 600 yuan ($96) a tonne a year ago, he said.