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Weak iron ore market sends miners far afield in China

Summary:
The persistently weak outlook for iron ore and steel has forced some Chinese miners to get creative to stay in business. Shenzhen-listed Shandong Geo-mineral is looking to the tire sector after recording losses in iron ore mining and sales since 2014. The company, based in Jinan, Shandong province, announced August 8 it would to set up a joint venture with Shandong Huitong Tyre, with the iron ore miner investing Yuan 210 million ( million) in exchange for a 70% stake in the new entity. The joint venture will make tires for heavy-duty vehicles for engineering and construction, a company official said Thursday. “Iron ore prices both at home and in the global market have been declining and the market outlook remains pessimistic, so it is time for us to find alternative businesses to get out of the loss-making,” he said. Huitong Tyre, headquartered in Laiwu, also in Shandong province, has a large market share in tires sales in the US, which was a key factor in Shandong Geo-minerals seeking the partnership, the official said. Shandong Geo-minerals, a state-owned iron ore producer, operates two mines in the central Anhui province and one mine in the northern Shanxi province. It produced 446,300 mt of iron ore concentrate in 2014, up 4% year on year.

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The persistently weak outlook for iron ore and steel has forced some Chinese miners to get creative to stay in business.

Shenzhen-listed Shandong Geo-mineral is looking to the tire sector after recording losses in iron ore mining and sales since 2014.

The company, based in Jinan, Shandong province, announced August 8 it would to set up a joint venture with Shandong Huitong Tyre, with the iron ore miner investing Yuan 210 million ($33 million) in exchange for a 70% stake in the new entity.

The joint venture will make tires for heavy-duty vehicles for engineering and construction, a company official said Thursday.

“Iron ore prices both at home and in the global market have been declining and the market outlook remains pessimistic, so it is time for us to find alternative businesses to get out of the loss-making,” he said.

Huitong Tyre, headquartered in Laiwu, also in Shandong province, has a large market share in tires sales in the US, which was a key factor in Shandong Geo-minerals seeking the partnership, the official said.

Shandong Geo-minerals, a state-owned iron ore producer, operates two mines in the central Anhui province and one mine in the northern Shanxi province. It produced 446,300 mt of iron ore concentrate in 2014, up 4% year on year.

The company recorded a net loss of Yuan 31 million last year and expects heavier losses of Yuan 45 million-52 million for the first half of 2015.

Many of China’s domestic iron ore mining operations are also running at losses since early this year when domestic prices declined to around Yuan 600/dry mt for the 66% grade concentrates.

A worsening iron ore oversupply has forced the miners to cut prices to compete against imports. But they are nevertheless losing market share due to overseas miners’ higher grades and lower production costs.

Mining operations in Anhui province, with the highest production costs among Chinese mines due to lower ferrous content and high impurities, have been suffering the most and many have opted to halt production since 2015.

Market observers expect other iron ore miners to change focus like this to survive.

“In the long run, this will be like a slow bleeding to death with the lossmaking, and I do not think the situation will reverse anytime; the problem is what we should diversify into, as all sectors that we are familiar with and may be an expertise are suffering, either steel or iron ore, or related trading,” said a miner in east China’s Shandong province.


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