Under the context of normalized COVID-19 prevention and control in 2021, driven by the global economic recovery and quantitative easing monetary policies adopted by major economies, commodity prices surged significantly—particularly iron ore prices, which soared to over US$230 per ton, reaching an all-time high. As a result, the stability of the steel industry’s supply chain has come under intense scrutiny. China’s steel industry once again highlighted its high dependence on foreign sources for raw materials, its fragile supply chain, and unstable supply channels. Consequently, the sustainable development of both upstream and downstream sectors of the steel value chain has become a hot topic of discussion within the industry.

　　I. Current Supply and Demand Situation

　　(1) Iron Ore Demand Situation

In 2021, the steel industry as a whole was in a profitable phase, and enterprises showed high production enthusiasm. However, due to the dual-control policy on crude steel capacity and output, steel production declined somewhat. In 2021, China’s pig iron production reached 868 million tons, a year-on-year decrease of 4.3%. Iron ore consumption amounted to approximately 1.371 billion tons (equivalent to iron ore with a 62% grade).

　　(2) Iron Ore Supply Situation

1. Made in China

　　On the domestic mining front, in 2021, China’s cumulative production of raw iron ore reached 980.528 million tons, equivalent to approximately 305 million tons of finished ore (based on a 62% grade), representing a year-on-year increase of 9.4%. In 2021, influenced by fluctuations in imported ore prices, domestic iron ore prices experienced significant volatility. At the beginning of the year, the price was 970 yuan per ton; by July, it had rapidly risen to 1,350 yuan per ton, after which it fluctuated downward to 800 yuan per ton by year-end.

2. Import

　　Regarding imported ores, in 2021, China’s cumulative iron ore imports totaled 1,124.315 million tons, a decrease of 3.9% year-on-year. The average import price was US$164.3 per ton, up 61.6% from 2020. At the end of 2021, port inventories stood at 156 million tons, an increase of 32 million tons compared to the beginning of the year. In 2021, the total supply of iron ore amounted to approximately 1.397 billion tons.

In 2021, the prices of imported iron ore experienced significant fluctuations. The monthly average import price of iron ore rose from US$133.3 per ton in January to US$207.6 per ton in August, then quickly declined to US$102.6 per ton by December. The rise in iron ore prices was primarily driven by a combination of factors, including overinterpretation by the market and speculative activities by financial capital, which together propelled a rapid increase in import prices.

　　(3) Iron Ore Supply and Demand Analysis

　　Overall, in 2021, China's iron ore supply significantly exceeded demand, with a surplus of approximately 89.44 million tons. Although the international iron ore market has experienced frequent fluctuations, domestic mines have been able to quickly adjust their output, and port inventories have served as a buffer, enabling timely adjustments to balance supply and demand.

　　II. Existing Issues

　　The primary issue underlying the development of China’s iron ore industry is, in fact, a structural imbalance within the industry. This imbalance manifests itself in several key ways: First, China imports large volumes of iron ore, accounting for a high proportion and with a concentrated source of supply—over 80% of China’s iron ore imports come from abroad. In recent years, China’s iron ore import volume has shown a steady upward trend year after year; from 2015 to 2020, imports exceeded 1 billion tons for six consecutive years. Second, iron ore has strong financial characteristics, and China lacks pricing power. Imported iron ore is heavily dominated by the four major mining companies, leaving China severely deprived of pricing authority and exposing it to sharp price fluctuations. Third, there is an asymmetry in market power between suppliers and demanders; imported iron ore is highly monopolized. Among the sources of imported iron ore, Australia and Brazil together account for over 80%. Fourth, there is a severe imbalance in profit distribution between upstream and downstream sectors of the industry. From 2012 to 2020, the total profits of China’s major and medium-sized steel enterprises amounted to 880.68 billion yuan, while the combined EBITDA from the iron ore business of the four major mining companies reached 2,149.43 billion yuan—2.4 times the total profits of China’s key steel enterprises. Moreover, the net profits of the four major mining companies totaled 1,113.04 billion yuan, 1.3 times the total profits of China’s key steel enterprises. Fifth, there is an asymmetry in production processes between upstream and downstream sectors of the industry. Due to differences in process continuity, the mining sector constrains the metallurgical sector.

　　(1) Domestic iron ore production

1. Domestic mines face dual constraints—resource and environmental limitations—making substantial production increases difficult to achieve.

　　The characteristics of China’s iron ore resource endowment—“poor quality, complex composition, fine grain size,” “small scale, wide distribution, and great depth”—determine that iron ore enterprises are “numerous, small in size, scattered, and disorganized.” This structural layout makes it difficult to exploit these resources, causes significant environmental disruption, and places immense pressure on safe production. Under the increasingly stringent requirements for safety, environmental protection, energy consumption, product quality, and standards, the number of small-scale mines continues to decline, making substantial increases in domestic iron ore production highly unlikely.

2. Domestic mines are relatively small in scale, making their development easily influenced by the international market.

　　With the rising intensity of domestic demand for iron ore, global iron ore supply has shown weak growth and remains tight, causing a sharp increase in global iron ore market prices and a corresponding surge in the profitability of domestic mines. However, as major international mining giants resume production, global iron ore supply will once again exceed demand, leading to a sudden drop in global iron ore market prices. Consequently, the profitability of domestic mines will once again decline sharply, influenced by the recovery of international supply. As a result, iron ore prices are experiencing frequent and substantial fluctuations, and the profitability of domestic mines remains highly volatile, which is detrimental to the healthy and stable development of China’s iron ore industry.

　　(2) Regarding imported iron ore

1. Imports of iron ore, inventory levels, and external dependence continue to remain high, and the sources of imported iron ore remain highly concentrated.

In 2021, China’s iron ore imports totaled 1.124 billion tons, continuing to remain at a high level. At the end of 2021, iron ore inventories at major ports nationwide stood at 156 million tons, still at a relatively high level. Since 2015, the steel industry’s dependence on foreign iron ore has remained above 80% for six consecutive years. In 2021, affected by the country’s dual-control policy on domestic steel production capacity and output, domestic steel production declined somewhat, causing the steel industry’s reliance on foreign iron ore to drop to 76.6%, marking the first time in recent years that this figure has fallen below 80%. China’s main sources of iron ore imports are highly concentrated, leaving few viable alternatives and posing risks to the security of iron ore supply for China’s steel industry.

2. The development of overseas high-quality iron ore resource production bases is progressing slowly, and the proportion of equity-based mines remains low.

　　Currently, China’s overseas equity-based mineral production capacity amounts to only 73 million tons, accounting for just 6% of the country’s annual import volume. There remains a significant gap compared to developed countries such as South Korea and Japan. As the world’s third-largest steel producer, Japan, and the sixth-largest steel producer, South Korea, both rely almost entirely on imported iron ore; yet the share of equity-based minerals in their imports exceeds 50% each. Most of China’s overseas projects date back to collaborations established before 2009. During the 13th Five-Year Plan period, the development of overseas mineral resource production bases progressed relatively slowly, resulting in a low proportion of equity-based minerals.

　　(3) On iron ore prices

1. The price-discovery function for domestic iron ore remains inconspicuous, and the reshaping of the pricing mechanism has yet to achieve substantial progress.

　　Affected by the highly concentrated supply of iron ore, pricing mechanisms—from negotiated pricing and quarterly pricing to index-based pricing—have all been dominated by sellers. As a result, China has consistently found itself in a passive position with little say in iron ore pricing, and this situation has yet to be effectively improved. Currently, the spot market pricing mechanism for iron ore largely relies on the Platts Index, which exhibits a positive correlation with the futures market. This close linkage between the futures and spot markets has significantly enhanced the financial attributes of iron ore, making it more susceptible to market speculation. Consequently, prices are prone to sharp fluctuations driven by excessive speculation in iron ore financial products and their derivatives.

2. Significant fluctuations in imported ore prices threaten the security of steel raw material supply.

During the 13th Five-Year Plan period, China’s import price of iron ore first declined and then rose. Starting from US$163.8 per ton in 2011, the price fell to US$56.3 per ton by 2016, then climbed back up to US$101.7 per ton by 2020, and further surged to US$230 per ton by May 2021, before rapidly dropping to US$102.6 per ton by December. The sharp fluctuations in imported ore prices have significantly increased the risk of securing iron ore resources for China’s steel industry. Under high ore prices, the profit-sharing model among upstream foreign mining companies and steel enterprises, as well as downstream steel-using enterprises, has become completely unbalanced. The cost of iron ore delivered to shore—mined in Brazil or Australia—is only about US$30 to US$40; yet the selling price far exceeds these costs, severely eroding the profit margins of both steelmakers and steel users, and thus causing extremely adverse consequences for the sustainable development of both upstream and downstream sectors of the steel industry. (Author: Wen Zilong, Senior Engineer at the Metallurgical Industry Planning and Research Institute, China Mining News)