Miner Rio Tinto and China's Baowu Steel Group will set up a joint venture, investing $2 billion to develop an iron ore project in the Pilbara region of Western Australia, the miner said Sept. 14.
The Western Range project, with 25 million mt iron ore output capacity, will help continue production of the Pilbara Blend from Rio Tinto's Paraburdoo mining hub, the miner said.
The announcement follows China's announcement of setting up a new industry group that aims to secure iron ore resources as the domestic industry looks to gain more bargaining power in iron ore trade negotiations and supply security.
Construction of the Western Range Project is set to start in early 2023, with first production seen in 2025, according to Rio Tinto. The project includes construction of a primary crusher and an 18 km conveyor system connected with the current Paraburdoo processing plant.
Meanwhile, Rio Tinto and Baowu have also agreed to sign an iron ore sales deal at market prices, involving total sales of up to 126.5 million mt of iron ore over 13 years, Rio Tinto said. This volume equates Baowu's 46% stake in the expected 275 million mt iron ore output from Western Range through the venture in the coming years, according to Rio Tinto.
According to the miner, the joint venture is a sgnificant milestone for both Rio Tinto and Baowu, its biggest client in the world, with Rio Tinto having shipped more than 200 million mt of iron ore under its original joint venture in the past four decades.
Rio Tinto's Paraburdoo hub consists of three operating mines, Paraburdoo, Channar and Eastern Range.
Rio Tinto is the world's largest iron ore producer and Baowu is the world's largest steelmaker.
Securing iron ore supplies
Baowu's move is mainly aimed at securing sufficient overseas iron ore resources, which is also in line with the "cornerstone plan" launched by the Chinese steel industry earlier this year.
China Iron & Steel Association plans to hike the Chinese captive overseas iron ore production to 370 million mt by 2025, up by 100 million mt from 2020.
Currently, Baowu owns 46% shares in the 10 million mt/year of Eastern Range deposits in the Pilbara through the joint venture with Rio Tinto.
In addition, it also has 6 million mt/year of captive iron ore resources in Brazil through the joint venture with Vale, and about 7 million mt/year iron ore resources in Liberia.
Recently, China created an entity called China Mineral Resources Group, with its core business initially focusing on iron ore related operations. The aim is to give Chinese steel mills greater influence over iron ore prices.
China is the world's largest steel producer and iron ore importer but lacks grip over iron ore pricing with too many players involved in purchases, according to analysts.
China's top 10 steel plants only accounted for 41.5% of national steel output, much lower than their counterparts in the US, Japan and South Korea, making Chinese steel sector comparatively weaker in iron ore price bargaining, according to Minsheng Securities.
Chinese domestic iron ore mining sector's run rate has fallen in the recent month, with utilization rates in North China, East China, Northwest China and Southwest China posting varied extent of rate declines, Tongguan Jinyuan Futures said in a note.
China's national iron ore output in the first seven months of 2022 fell 3.3% year on year to 572.31 million mt, data by National Statistics Bureau showed.