2010-06-09 11:10

Miners say cut will stimulate domestic iron ore consumption

BEIJING - The government is studying a proposal to reduce the tax on domestic iron ore resources in order to stimulate domestic suppliers and reduce dependence on costly imports, a top official from the China Mining Association said on Tuesday.

The association recently floated a proposal to cut taxes on domestic iron ore mines to the National Development and Reform Commission, the country's economic planner. The commission is now conducting research on the feasibility of the proposal, said Zeng Shaojin, vice-president of China Mining Association.

The proposal comes amid reports that top three global miners - Vale, BHP Billiton and Rio Tinto - will bump up imported iron ore prices in the third quarter despite falling domestic steel prices.

BHP and Rio plan to raise third-quarter iron ore prices by up to 23 percent, which means iron ore could hit $147 per ton, Reuters quoted unnamed sources from Japanese steel mills as saying on Tuesday. Earlier reports said Vale would increase iron ore prices by 35 percent for the third quarter, while Chinese steel mills cut product prices by 10 percent for July.

Chinese steel mills have long complained about a dependence on iron ore imports, which put them at a disadvantage in iron ore price talks.

Iron ore imports account for 62.3 percent of total consumption in China last year.

China increased iron ore imports by 42 percent to a record 628 million tons in 2009.

The country has domestic iron ore reserves of 62.4 billion tons, but most mines have low iron content, adding to the cost of mining.

The current domestic iron ore resources tax accounts for 20 percent of the mining cost, eight times more than the proportion of the Brazilian and Australian's mining sectors, according to the Metallurgical Mines' Association of China.

"Reducing the resource tax to lower costs will warm up domestic miners' initiative to explore more ore supplies," said Zeng.

Low-priced spot ore imports resulted from the financial crisis last year that squeezed domestic miners' margins, and pushed some out of business. But when imported ore prices jumped above domestic pricing levels, China's miners shifted back to sourcing from the local markets.

The average cost of processed high content domestic ore is around 850 yuan ($124) per ton. If imported ore rose above $130 per ton, some Chinese steel mills would enhance the iron content of domestic ore, said a sales manager from a private steel mill.

During the first quarter, domestic iron ore output rose to 204 million tons, up 21 percent from a year earlier, according to the China Iron and Steel Association (CISA).

CISA Vice-President Luo Bingsheng said earlier that China should encourage domestic iron ore miners to expand production to reduce dependence on global miners.