China to revoke over 1,000 iron ore licenses amid tackling pollution

Iron ore prices resumed on Wednesday after China announced that it would revoke about a third of its iron ore licenses, mostly to small, outdated enterprises.

Lei Pingxi, chief engineer of the China Metallurgical Association of Mines, said the measure would affect about 1,000 small mines, most of which have tried to bypass Beijing's efforts to improve air quality by bypassing inspections. However, these operations will be forced to update production processes or will be closed permanently.

Further falls in iron ore prices are projected to around $ 60 /t by the end of the year as China also imposes environmental restrictions on steel production.

Iron ore prices fell after a 3% rise to $ 64.95 a tonne on Tuesday - its largest one-day percentage increase since Aug 31 for a 62% iron ore at Qingdao Port, which fell to $ 64.15 a tonne.

Analysts predict further falls are forecast in iron ore prices to around $ 60 a tonne by the end of the year, as China also imposes environmental restrictions on steel production.

Goldman Sachs, for example, believes that price "sits at the intersection of policy and demand" and that China is likely to impose restrictions on steel production, which is likely to reduce demand.

But Beijing's decision to shut down polluting producers could benefit iron ore exporters.

The mines in China produce about 350 million - 400 million tons per year at 62% Fe. About one third of many small mines producing low grade iron ore (on average around 20%) have costs per tonne greater than $ 100.

Most of the Chinese ore requires a process called sintering (fine particles are mixed with coking coal and partially melted) before being fed to blast furnaces, which greatly increases the environmental impact of the steel industry.

Last year, the country's steelmakers replaced domestic supply and reduced the percentage of fines from pellet production in favor of so-called "lump" ore from Australia, South Africa and South America, which lowers costs and reduces pollution by reducing sintering.

Goldman Sachs commented, “You might think China will now need to import more iron ore, but with new pollution control measures in Beijing affecting the steel industry, the truth is that ore demand is likely to decrease in while the world's mineral reserves will expand. "