Push to boost profit margin in steel sector

PUBLISHED : Thursday, 24 February, 2011, 12:00am
UPDATED : Thursday, 24 February, 2011, 12:00am

The central government hopes to more than double the percentage contribution of iron ore imports from overseas mines in which it has invested to improve the mainland steel industry's paltry profitability, says an industry veteran.

Luo Bingsheng, the former vice-chairman of the government-affiliated China Iron and Steel Association that represented the industry in iron ore talks in 2009, said Beijing wanted 40 per cent of imports to be sourced from mines in which mainland steel mills had stakes by 2015, up from 15 per cent last year.

'We must continue our external development strategy and enhance investment in overseas iron ore mines,' he said. Domestic mine development should also be stepped up to cut reliance on imports, he said yesterday at a conference examining international commodity price trends.

Last year, the industry imported 682 million tonnes of iron ore, 1.46 per cent less than in 2009. Meanwhile, domestic output surged 21.6 per cent to 1.07 billion tonnes. This saw the industry's reliance on iron ore imports fall to below 40 per cent from 50 per cent three years ago.

High import prices helped make uneconomical domestic mines viable. Imported iron ore priced at overseas ports soared 60.7 per cent last year to US$128.38 per tonne, he said.

Mining giant BHP Billiton recently raised its price at Australian ports to US$168 from US$155 in January. When sea freight is added, the price at mainland ports is US$200.

'For iron ore alone, last year's import volume of 618 million tonnes and an average price rise of US$48.50 a tonne meant the industry paid US$30 billion more in costs,' Luo said.

Last year, medium and large mainland steel mills made 89.7 billion yuan (HK$106 billion) in combined profits, up 52 per cent from 2009, but the margin was only 2.9 per cent, he said.

Additional reporting by Ed Zhang