China renews calls for rational iron ore price

SYDNEY - The Consul General of the People' s Republic of China in Perth, Wang Yiner Wednesday has led fresh calls for the establishment of a "fair and equitable" price mechanism for iron ore and a return to a rational iron ore price at a key international mining forum in Perth.

In a keynote speech to some of the world's leading miners at the Midwest International Mining Forum in Western Australia, Wang identified the volatile price of iron ore as a negative influence on both the Chinese steel industry, as well as the ongoing resource cooperation between China and Australia.

"So as to strengthen cooperation, (officials must) explore the possibility of establishing a fair and equitable price mechanism for iron ore and promote the return to rationality of the iron ore price, thus laying a solid foundation for the continuity, stabilization and deepening of cooperation between China- Australia mining industries over the coming decade," she said.

In Western Australia alone the resources industry was worth A$107 billion in 2011 and the iron ore sector in particular is now the State's leading commodity, generating A$62.8 billion in sales with shipments totaling 427 million tons. The great majority of that iron ore heads directly to China.

In 2002, China imported 42.78 million tons of iron ore from Australia, at an average price of only $15.8 per ton. In 2011, Australia exported 300 million tons of iron ore to China, whereby the highest price had reached $180 per ton in February 2011.

Wang said the continuing high price of iron ore is constantly eroding the room to move for the Chinese steel industry.

"This year, the steel industry in China is experiencing a hard time. If the condition for the iron and steel industry can not be improved, or if 'losses' occur over a long period of time, the demand and supply situation between overseas and Chinese steel enterprises will have to make adjustments, which in turn will lead to a frequent rise and fall in international iron ore prices. Ultimately this will harm both sides and lead to a 'lose-lose' situation," she said.

The comments were made at the Midwest International Mining Forum which aims to significantly raise the profile of the Australian Midwest iron ore industry and highlighting the significant economic, community and employment benefits that flow from multi-billion dollar Chinese resource investment projects.

Western Australian Premier Colin Barnett called the Midwest Region one of Australia's fastest growing resource areas.

"It is rapidly becoming a major new mining and economic zone not just for the state, but the country. At present, the region is home to around 40 investment projects and was responsible for resource sales of $2.5 billion in 2011," Premier Barnett said.

An estimated $15 billion in capital investment is planned for the region, for not only magnetite iron ore projects but also other commodities.

"An important factor contributing to the continued development of major projects in the Midwest of Western Australia is our favorable global reputation," the Premier said.

Western Australia ranked 11th out of 93 global jurisdictions in the Fraser Institute Survey as a destination of choice for mining investment.

However Wang Yiner reminded key iron ore miners and industry leaders that the free-flow of capital from China needed to be met with an equal openness from Australian government and regulators, where the relative complexity of the legal system has meant a steep learning curve for investors and prevented the Chinese from cutting through.

Despite the challenges, including Australia's troubling skills shortage, Wang remained confident in the future of the Chinese Australian resource cooperation, which stands on the shoulders of 40 years of diplomatic relations this year.

Western Australia owns the richest mineral resources and commands almost 80 percent of Chinese investment in Australia.