Pardon me, friends, but I'm skeptical. At precisely the time that its steelmakers are involved in contentious iron ore pricing talks with the big three suppliers, China claims to have located a big ore deposit in its northeastern province of Liaoning.
The world's three largest ore suppliers, Rio Tinto
And then, when it appeared that negotiations were going nowhere, along comes what is being called the Dataigou deposit, which is said to contain more than 3 billion metric tons of ore. It's apparently not especially high-quality ore, ranging from 25% to 62% iron ore content, versus typically above 60% for the major suppliers. The range in Chinese mines is typically in the vicinity of 20% to 40%.
Beyond that is confusion about when mining of the ore could begin. There is speculation that it could occur as early as next year, while another analyst surveying the discovery felt it could take as long as four years for start-up.
So why am I skeptical? I suppose it’s the timing of the find, coming as it does amid the difficult negotiations. During last year's commodity run-up, the Chinese steelmakers had little choice but to acquiesce to major ore price hikes by their overseas suppliers.
Now, however, there's been a complete about-face on the steel pricing and production fronts. It's a phenomenon that has also hammered the likes of domestic producers U.S. Steel
As an investor, however, my specific inclination is to carefully follow how these negotiations progress. Among the above companies, I would watch Rio Tinto especially closely. I recognize that it's pulled back nearly 25% from its high this month and current shareholders have suffered dilution as a result of the spurned Aluminum Corp. of China
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