China vows greater iron ore self-sufficiency as ‘deglobalisation tide’ and coronavirus expose mineral supply risks

China will encourage domestic exploration of iron ore and use more scrap metals to reduce reliance on imports from countries like Australia, while streamlining production quotas for rare earth and tungsten, according to the government. In the 2021-25 raw material development plan, authorities said iron self-sufficiency would be “significantly” increased by lifting the supply of scrap steel to more than 30 per cent of the total, encouraging domestic mining and reducing steelmaking capacity. “The raw material industry is the foundation of the real economy and a basic industry that supports the development of the national economy. It is a key area [for China] to gain international competitive advantages,” said the plan jointly drafted by the Ministry of Industry and Information Technology (MIIT), the Ministry of Science and Technology and the Ministry of Natural Resources. “Such issues, like inadequate safeguards for key strategic resources, need to be resolved urgently.” The risk to industrial and supply chains has been exposed given the deglobalisation tide and the coronavirus pandemic Ministry of Industry and Information Technology China produced 56.7 per cent of global crude steel last year, 41 per cent of refined copper, and remains a global leader making many metals. But its lack of control over upstream mineral resources is an Achilles’ heel for the world’s second largest economy. China imported more than 80 per cent of iron ore requirements last year, about 60 per cent of which was from Australia. The high reliance on overseas steelmaking ingredients poses a severe challenge to the country’s highly-prized economic security. “The risk to industrial and supply chains has been exposed given the deglobalisation tide and the coronavirus pandemic. It’s obviously more difficult to expand to the international market,” said the government. Beijing has long complained about the iron ore pricing mechanism dominated by global miners like Rio Tinto, BHP and Vale. China’s steel industry body demanded an explanation from BHP about the surging cost of iron ore in December last year, before prices went on to reach a record high of US$230 per tonne in May. Despite deteriorating diplomatic ties, Beijing has not made an effort to restrict Australian iron ore imports. “We’ll promote international cooperation in mineral resources, while optimising the structure and distribution of outbound investment,” the government said. “We must improve the ore trading market system and form an open, transparent, fair and reasonable pricing mechanism.” China’s new rare earth merger hands it ‘trump card’ against US Domestic mineral resources are seen as a ballast against unreliable external supply in the new five-year plan. Although Chinese ore is less competitive than products from Australia or Brazil in terms of iron content, mining cost and volume, authorities plan to increase financial support for exploration and use tax incentives to encourage the development of low-grade domestic ores. In a steel industry development guideline released in January, MIIT said China’s self-sufficiency ratio for iron needs to be above 45 per cent by 2025. It set a target for scrap steel output at 300 million metric tonnes annually, equivalent to 30 per cent of national crude steel production. Speaking on Wednesday, Chen Kelong, director of MIIT’s raw material department, said domestic production capacity for crude steel will be slashed over the next five years. The cut was necessary because domestic demand for steel, aluminium, cement and other commodities had peaked, or was nearly there, while steel mills are facing energy and decarbonisation constraints, according to Beijing. The country has removed 150 million metric tonnes of steel production capacity in the past five years, which at the end of 2020 was 1.08 billion metric tonnes, according to the National Bureau of Statistics. Meanwhile, China will optimise the annual quota mechanism for production of rare earth, tungsten and other minerals using a “scientific method”, the government document showed. China supplied 58.3 per cent of global rare earth products last year, which are needed in electric vehicles, wind turbines and military equipment. It raised the 2021 mining and smelting quota by 20 per cent to 168,000 metric tonnes and 162,000 metric tonnes, respectively.