China has turned its back on Siberian ores
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Bystrinsky GOK, located in Transbaikalia and traditionally exporting iron ore to China, shipped to the domestic market for the first time in two years. Iron ore producers in the Far East are under pressure this year from Chinese metallurgists, who are demanding lower prices amid declining demand for steel on the local market. An additional factor could be congestion at border crossings given the high seasonal supplies of Russian coal to China.
In November, railway shipments of iron ore raw materials from the Trans-Baikal Territory to the domestic market were registered for the first time, a source in the railway transportation market told Kommersant. The Bystrinsky mining and processing plant is located in the Trans-Baikal Territory, which produces 2.5 million tons of iron ore concentrate per year, 67.2 thousand tons of copper concentrate and 256 thousand troy ounces of gold. The shareholders of the mining and processing plant are Norilsk Nickel – 50.01%, the structure of the Chinese fund Hopu – 13.33%, Interros of Vladimir Potanin – 36.66%.
Bystrinsky GOK traditionally exports ore to China and, according to the industry agency Metals & Mining Intelligence (MMI), last made deliveries to the domestic market in early 2022. MMI reported in a December report that in November the mining and processing plant shipped iron ore raw materials to Russia, and Evraz ZSMK, located in the Kemerovo region, became the buyer of the concentrate. Norilsk Nickel and Evraz did not provide comments.
The ore producer IRC also operates in the Far East, whose main asset is the Kimkano-Sutarsky GOK in the Jewish Autonomous Okrug. In a report for the first half of 2023, the IRC noted that nearby large Chinese steel mills are controlled by one group, which negatively affects the bargaining power of the Russian supplier. “IRC’s Chinese customers expect a discount from Platts’ base price, and IRC has relatively little ability to counter these monopolistic demands,” the report said. Since the purchase prices offered by Russian clients were not attractive, in the first half of the year IRC supplied minimal quantities to the Russian market, redirecting most of the volumes to the Chinese maritime market. Iron ore prices fell in the second quarter of 2023, impacting marine sales margins, and IRC is poised to adjust its marketing strategy under these conditions, the report notes. In the third quarter of the year, the average price level for iron ore fell by 5% compared to the level of the first half of the year, to $125 per ton.
According to the World Steel Association, in January-October China reduced production by 1.8%, to 874.7 million tons. The crisis in China’s real estate sector is fueling concerns that developers may be consuming less construction steel, which in turn will weigh on ore prices. Another negative sign is record growth in Chinese steel exports, which could reach 90 million tonnes this year, according to Platts. The situation in the Chinese metallurgy has already affected Russian exports of ferrous metals to China, which have returned to pre-crisis levels (see Kommersant on December 8). According to industry agencies, demand for steel in China remains weak.
Another reason for the redirection of supplies to the domestic market in November could be logistics problems. Most likely, the border crossing with China is currently overloaded due to high seasonal supplies of coal, says independent industrial expert Maxim Shaposhnikov. Therefore, in order not to pay additional funds for the use of wagons, Bystrinsky GOK decided to supply the products to ZSMK. “In winter, the likelihood of such an operation repeating is high, but after the rush demand for coal subsides and the rental rates for wagons in this direction decline, ore supplies to China will return to their previous levels,” the analyst believes.
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