A sense of uneasiness is palpable among some of our exporters of iron ore to China following Beijing’s decision to make random checks on the imported material at major ports. Beijing has not said if it is targeting ore of a particular origin to establish the veracity of complaints about adulteration and despatch of lower than contractual grades by importers and steelmakers. Considering China’s rapidly growing dependence on imported ore and some officials allowing themselves to be compromised, the temptation for ore suppliers to indulge in malpractices is not to be ruled out.
Not to leave any loophole in the investigation, officials of eight government departments, including the commerce ministry, National Development and Reform Commission and China Iron and Steel Association, which incidentally made a mess of annual benchmark ore price negotiations with the leading miners last year, will do quality checking. If it suits the country, China could come down hard on foreigners as happened with Rio Tinto official of Australian origin for taking bribes which he admits and stealing commercial secrets which he denies.
Hopefully, the Indian iron ore exporters will come out of quality check with its reputation remaining intact. China is of strategic importance for Indian ore exporters as this one destination alone accounts for around 90 per cent of India’s annual exports of around 105 million tonnes. Moreover, iron ore is India’s dominant export item to China with which we have a growing trade deficit.
Call it our blinkered attitude to export this commodity despite the absence of sufficient local capacity to use ore fines generated in the process of mining, India has not been able to partake of the growth in Chinese imports of iron ore to the same extent as Australia and Brazil. In fact, the pitch for Indian exporters may get further queered if the steel ministry has its way in further raising the export duty on ore. Nothing will please the world’s two leading iron ore producing and exporting countries more than India’s ore export drive getting checkmated by its own policy move, says RK Sharma of Federation of Indian Mineral Industries.
As our government remains in a state of dithering as to the advisability of exports, China raised iron ore imports by as much as 41.6 per cent in 2009 to 621.5 million tonnes. This occasioned as China continued to wind down domestic production of inferior grades of ore but surprising the world once more raised production of liquid steel by 13.5 per cent to 567.8 million tonnes last year. Hasn’t Sam Walsh, chief executive of Rio Tinto’s iron ore business made the admission that “We have in the past underestimated China.”
In fact, China raising its share of world crude steel output to 47 per cent in 2009, a rise of 9 percentage points over the previous year along with the unannounced policy move to use more and more iron ore of foreign origin has brought about a “fundamental change in the landscape” for the mineral. To give the example of Rio Tinto, which in view of China’s growing demand for iron ore is “immediately studying six new mine development and expansion plans.” Such expansions, it is explained, will ensure fuller use of Rio Tinto port capacity being expanded.
China in any case is becoming increasingly important for Rio’s iron ore business. Last year the Anglo Australian company sold 70 per cent of its ore production to China against only 16 per cent in 2000. The sheer size of its China business must be the reason why Rio climbed down from its initial trenchant criticism of Beijing for the arrest of one Australian and three Chinese officers of the company. There might have been occasional blips in their relationship, but China and Rio well appreciate their commonality of interest. That is why Walsh made it a point to mention at an iron ore conference in Perth that Rio was wise in choosing Chinalco as joint venture partner for its Simandou ore project in Guinea. Chinalco, according to him, will help the project access low cost infrastructure.
Simandou deposits are of “very high grade” but the success of the project hinges upon the creation of several hundred kilometres of railroad connecting the mine to a deep water port. Here Chinalco’s participation in the JV is of strategic significance. There is a lesson for India in what China is doing to achieve security in raw materials, including oil by buying up assets globally, particularly in Africa. According to a Metal Bulletin report, China’s investment in Africa and other regions will be $100 billion this year. Mind you China is doing much better than the US in Africa when it comes to acquiring mineral assets. One reason is China has earned the goodwill of even the more disturbed places in Africa but endowed with rich minerals by making investments in infrastructure on highly favourable terms.