In the longer term scrap metal might have a more material role in China’s steel industry – China wants to double production from its electric arc furnaces over the next four or five years – but its ambitions will have only modest impacts on its demand for iron ore and iron ore prices in the medium term.
Along with a crackdown on iron ore futures trading last week – the authorities vowed to punish market manipulation – the actions helped slightly lower the iron ore price, from more than $US230 a tonne to around $US210 a tonne. Iron ore started this year priced at less than $US160 a tonne, having traded down to around $US60 a tonne just over a year ago.
China’s reliance on Australian iron ore for almost two-thirds of its steel industry’s requirements and Vale’s continuing struggles to restore production after its tailing dam disasters and pandemic-related disruptions in Brazil means there is little it can do to curtail purchases of Australian iron ore without hurting its steel industry and economy.
Even if it can develop new sources of supply, with the giant Simandou resource in Guinea the most obvious, they would be higher-cost (development of the infrastructure for Simandou could cost the best part of $US20 billion), are nearly a decade away and would in any event probably represent only about 10 per cent of China’s existing demand.
