(continued from previous post)
The "warehouse" is actually hundreds of acres of open grounds a few blocks back from the ports. It houses pile after 4m pile of imported dirt. They are covered by an uneven patchwork of lurid green tarpaulins that are regularly hosed down with a sprinkler system to stop the cargo from joining the other pollutants in Tianjin's thick, choking haze.
Hou Zhiyun, from steel industry website Langsteel.com, says that, according to the latest figures to the middle of this month, there are 70 million tonnes of iron ore stored at China's ports. There are an estimated further 30 million tonnes at mills and traders' warehouses.
A warehouse supervisor, who would only give his name as Lin, says the space is constantly full as ships make their deposits and customers come to pick up their consignments. He says the tight space means that mills and traders have a maximum of 30 days to get the ore to their own warehouses around northern and central China before fines are imposed. Many smaller mills and traders choose to delay moving the iron ore out of ports, to achieve lower storage costs.
The small mills have this year been cut out of the annual price negotiations with the big iron ore producers -- Australia's Rio Tinto and BHP Billiton and Brazil's Vale. The talks have been taken over from Baosteel and other major steel producers by the government-run China Iron and Steel Association. Both the smaller steelmakers and the proliferation of traders are betting that CISA's deal won't be as good -- if they can get it -- as a deal on the spot market, which has been down as much as 40 per cent from last year.
China's authoritarian government has been struggling to maintain control over the steel sector for years. And the growing stockpile suggests its grip has been further loosened.
For more than a year, the government has been trying to force consolidation in the steel industry, rub out unlicensed traders and control imports. A strongly worded missive last June from eight departments, including the Chinese cabinet, was all but ignored. Last month came another attempt.
As in many other key sectors of "national importance", China's leaders have long wanted to create a small group of giant steelmakers that can help it better control prices. It does not want countless small mills forcing up the price by bidding against one another. In recent years, as the iron ore price has soared to record levels, mainly on the back of Chinese demand, the government has stepped up its efforts.
Instead, the opposite has happened. As big state-owned mills have splurged on infrastructure to build high-end and cutting-edge products for industries such as the depressed airline and shipping sectors, more efficient privately owned mills stepped into the breach to make regular steel products.
The global recession curbed demand for the more expensive products in the steel market, cutting the profits of industry giants and landing them with excess capacity at the top end. This handed a further advantage to the smaller, focused mills that now number in the hundreds.
Now CISA is believed to be threatening to take away up to 30per cent of the 112 official iron ore import licences. The group has succeeded in stopping most traders and mills from commenting to the media, but other than that they are getting on with their business.
Zeng Jieshen, an analyst at Mysteel.com, does not think such a cut will help. He says that since the Ministry of Commerce issued the licences in 2005, the licence numbers have dropped from 523 to 112 "but the situation wasn't improved".
"Even if they cut another 30per cent, it won't solve the problem at its roots," he says.
To make things worse, the stockpile adds a fresh and unwanted element into the simmering, long-running discussions between China's steel sector and major iron ore producers. These have a deadline for a new benchmark price of next Tuesday, June 30.
But the winds of change that are sweeping through the iron ore and steel sectors mean this benchmark system, which sets iron ore import prices each year, is under perhaps terminal threat. At the Australian end, BHP has been pushing hard to introduce an index system. In China, Xu Tao, vice-general manager of Jianlong Co, a mid-sized mill in Tangshan that makes 2 million tonnes of steel each year, says the import system is in chaos.
"According to the country's policy, importers should charge a 3-5 per cent agents' fee only, but in reality the policy became a blank piece of paper," he told China's CCTV. Xu says his company is being forced to pay 1400 yuan for every tonne of iron ore, even though the contracted price is only 700-800 yuan.
"We're not included in the negotiations, nor can we share the long-term contract price, and we have to buy from the real market at a higher price."
Earlier this month, unconfirmed -- and undenied -- rumours swept the Chinese market that Brazilian iron ore behemoth Vale had signed a secret contract with 38 mid-sized and smaller mills around China, causing further fury at CISA.
Chinese steelmaker Sinosteel said this week that 70 per cent of the country's iron ore was now being imported. Now that the mineral's price has fallen back -- albeit only to 2007 levels -- its superior quality is triumphing over the local iron ore from high-cost, low-grade and dangerous Chinese mines, many of which have been forced to close.
This week, like a miracle answer to CISA's prayers -- only days before the benchmark negotiations are due to be completed -- China announced it had found Asia's largest iron ore deposit in the northeast province of Liaoning. But many are sceptical about the time -- three to four years -- and cost it will take to develop the exceptionally deep deposit, particularly with China's restrictive rules on offshore miners and their superior technology exploiting homegrown resources. Another wrench was tossed into the system this week when the US and Europe lodged a complaint with the World Trade Organisation about China restricting exports on certain minerals and chemicals used in steelmaking.