LONDON, November 3, 2017 /PRNewswire/ --
The structural changes taking place in the Chinese steel industry will lead to increased demand for higher-quality iron ore. This will create opportunities for companies looking to export pellet feed.
Proximity to China means that Australian projects have the potential to be the main beneficiaries of this change and there are several mines at various stages of development in the country. However, a poor track record of project implementation in the country may leave investors wary.
China's push for productivity
In CRU's Iron Ore Long Term Market Outlook, released in September, a key theme that emerges is how the Chinese steel industry of tomorrow is likely to differ from that seen on the ground today. Broadly speaking, our analysis suggests that the Chinese steel industry will produce more of its hot metal requirement from a smaller number of larger blast furnaces - and these furnaces will be operated at higher capacity utilisations. The steel industry in China is changing from a situation of overcapacity, categorised by low profitability and high debt levels, to one where profit levels are structurally higher. Please see this insight for more information on this.
As a result of this transition, CRU expects the average blast furnace burden in China to change, as companies seek greater productivity from their installed capacity. In 2016, our analysis suggests that sinter comprised 78% of the typical blast furnace burden, with pellets comprising 10%. However, in 2030, we expect sinter and pellets to comprise 67% and 18%, respectively. For two reasons, these projected burden changes are expected to result in a surge in demand for pellet feed imports into China. First, there is extensive pelletising capacity in China that was operating at an estimated average capacity utilisation rate of 45% in 2016. Second, CRU's research indicates that China will not be able to expand production of domestic concentrate. Although a greater proportion of domestic concentrate will be diverted to produce pellets in the future, the majority of domestic material will continue be consumed in the production of sinter until at least 2035. Imports of finished pellets are also not expected to materially increase, given China's expected desire to utilise its own industry to add value and the lack of additional pellet that could be diverted into the Chinese market.
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