China’s stature as an international powerhouse can be felt in economic markets across the globe. China’s domestic growth and increasing consumption is driving commodity prices, shipping costs, mining activity, steel consumption, and energy resource development. Most influenced are dry bulk shipping prices, especially iron ore and coal, central to China’s steel production.
Mid-December market analyses of several sectors show the degree of China’s influence. Prices for iron ore entering China, for instance, were holding steady at $140 per ton, exceeding even the expectations of the world’s leading mining companies who with each passing year are exporting more of their raw materials to China: Vale, Rio and BHP. The high prices were felt across China’s mining industry, some more deeply than others as they faced production costs of as much as $170 per ton. Over the first 11 months of 2013, China’s cumulative iron ore imports increased by 11%. September and November were record months, with 74.6 metric tons and 77.8 metric tons respectively, a significant jump from October’s total imports of 67.8 metric tons. Forecasters expect that a total of 801 metric tons will have reached China’s ports by the end of 2013, representing 67% of the 1,197 metric tons forecasted to reach ports in the rest of the world. China’s population growth combined with a healthy economy and busy construction industry are pushing up her per capital consumption of steel. As a consequence, the BCI 4TC index rose from a daily average of $6,136 in the first half of 2013 to $22,016 in the second half (as of 13 December).
But China is also facing some challenges. Its domestically produced raw material is inferior to what is available from outside markets, pushing up the quantities of iron ore and coal imports, and along with it freight rates. Furthermore, environmentalists and residents have been agitating about the low ferrous and high sulfur content of domestic coal which is increasing the amount of airborne pollutants. In response, the government initiated new restrictions on miners, designed to improve quality, reduce pollution and stabilize capacity and prices. Mining near to tourist or residential neighborhoods will be banned. Installation of dust abatement technologies will be required at all mines, along with penalties to encourage production of cleaner coal. The government will phase out any mine not producing at least 90,000 tons per year, and no new permits will be permitted to any mine not capable of producing at least 300,000 tons per year. Policymakers are following precedent set in 2008 during the international economic meltdown, when strict regulations were imposed on Shanxi Province mines, which, at the time, were supplying at least 40% of the nation’s coking coal. The trial regulations resulted in better prices and improved quality. The new regulations also address inferior coal product, causing increased imports from more superior coal mines abroad, such as in Australia, Mozambique and South Africa. This, of course, benefits the economic condition of the exporting countries. Australia, in particular, is looking forward to increasing its exports to China, forecasting that China’s imports of thermal coal will grow by 17% over the next five years.