Bloomberg
CHINA may introduce a nationwide subsidy for local iron ore producers amid slumping prices, according to the official Shanghai Securities News.
The subsidy might start as soon as the middle of this month, the newspaper reported yesterday, citing people in the industry that it did not identify. Attempts to get comment from the Finance Ministry were unsuccessful.
The introduction of a subsidy by the world’s largest steelmaker may further hurt prices that fell to a 10-year low last week, according to Shenhua Futures. The rout has left higher-cost producers in China and overseas mining at a loss, threatening mine closures and lay-offs. China is the top purchaser of seaborne ore, buying to supplement local output.
“The subsidies, if implemented, will sustain domestic production, increase the global supply of iron ore and result in prices slumping further,” Wu Zhili, an analyst at Shenhua Futures in Shenzhen, said, commenting on the newspaper report. Local mines accounted for about 20 percent of China’s iron ore demand, Wu said.
Two versions of the subsidy were under consideration, the report said. It said payments might be pegged to the ore’s grade, with producers of lower-quality output receiving bigger payments, or there might be a figure of 6 yuan (R12) a ton.
Ore with 62 percent content at Qingdao was little changed at $48.05 (R568) a dry ton yesterday, according to Metal Bulletin.
Prices fell to $47.08 last Thursday, the lowest level since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks for ore delivered to China compiled by Clarkson, the world’s largest shipbroker. Prices have lost 33 percent this year.
Chinese mills, which buy about two-thirds of seaborne ore, were encouraged to acquire mines domestically and overseas to secure supplies after a surge in output over the past decade.
“China’s steel industry is one of the industries that receives subsidies from the government because of its massive scale,” Wu said.