China has told its companies to produce more domestic iron ore as commodity prices hit record highs, but analysts say this will not reduce its reliance on Australian exports.
Beijing’s warning to Australia that it will ramp up domestic iron ore production sounds like an empty threat to anyone who has visited a mining operation in China.
“I have visited 30 or more Chinese iron ore mines. I’ve been underground. I’ve been to the biggest ones,” says Tim Murray, the co-founder of equity and macro research house J Capital.
“So I’m quite familiar with the capacity for domestic iron ore. The short answer is there is no chance of domestic iron ore replacing imports. Definitely not in the short term.
“Their deposits are harder to get. They are a low Fe [ore minerals] and require a lot of energy and environmental impact to make the blast furnace red.”
Analysts and iron ore traders in China agree with Murray, although they will not say so on the record because they fear repercussions. Skyrocketing iron ore prices have become a politically sensitive issue in China, where record steel output is underpinning Australia’s economic growth at a time when Beijing wants to punish Canberra.
