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High iron ore prices have prompted speculation that previously closed Chinese mines will re-enter the market. But how feasible is it for Chinese mines to resume production and at what capacity?
Rohan Kendall, Principal Analyst, Iron ore & Steel Costs, examines the feasibility and complexity of Chinese mines restarting.
Despite the rise in iron ore prices, we do not expect closed Chinese mines to restart production. Based on costs alone, an iron ore price of US$80/tonne is enough to incentivise almost 100 million tonnes of Chinese capacity to restart.
But the reality of reopening mines is more complex than just considering costs. The main factors against restarts include expectations that prices will fall, lack of finance and environmental licencing.
Most Chinese industry participants we have contacted expect Chinese domestic concentrate production to fall, not rise, this year. We hold the same view. We expect prices to fall towards US$50/tonne by the end of the year, leading to a further drop in Chinese production of around 20 million tonnes as lower-cost imports displace higher-cost domestic supply.