Rio and BHP win the blue sky war in China

China has decided to further integrate pollution controls into its industrial landscape in order to reinforce the common opinion of Australia's largest miners, namely that quality premiums for iron ore and coal are now structurally rewarding. A new three-year action plan announced on the government's official website more than doubles the number of large cities targeted for pollution by migration from the southern regime beyond the provinces surrounding Beijing to the Yangtze Delta and Shanghai [19659002]. which was signaled for the end of last winter's successful blue-skies campaign reinforces BHP's planned changes to Pilbara's product mix and the continuation of Rio Tinto's mining flexibility that will allow it to meet materials. More and more seasonal prime The Chinese steel industry is currently producing steel at a monthly operating rate equivalent to 955 millet. lion tons a year. That's what it does because the anti-pollution regime leaves an open window to maximize production during the summer months. But this rate will not be maintained and by the end of the year, the actual annual production will be of the order of 850 million tons.

This seasonal shift in production tides will be made more necessary by the changes announced on Wednesday. This means that, in order to maintain or gain more market share, iron miners like Rio and BHP will have to be able to adapt their mining and logistic systems to Pilbara and (in the case of BHP) to the Bowen Basin to meet the demand for years. month. The tide goes down and crosses the northern winter when the need for a blue sky over Beijing cancels the need to manufacture steel.

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That's why the general manager of Rio, Jean-Sebastien Jacques, can talk about valorization of volume and the same breath (or typing on the Yammer communication platform) announce a preference for its ability to Pilbara "

Automation Project

To be clear there, at the end of last year, Rio operated its Pilbara network at a rate of 360mtpa and he spent better than US $ 1. billion dollars ($ 1.3 billion) for a rail automation project that will see the system add maybe 15% to capacity by simply being able to operate more efficiently.

The narrative of JS is that the expansion of the capacity is to be able to ride the new waves of Chinese demand when prices reflect this demand pull mills. And that suits Chinese factories because they prefer to pay an incentive price for iron ore rather than having money on port stocks during the months when they can not operate their machine.

The whole history of iron ore is made more and more about the high quality factories are willing to pay for productivity and the kind of comparative cleanliness that will allow them to work with some profitability level due to the new Over the past month, Pilbara's high-grade ore price has consistently outstripped the performance of similar quality products due to stricter environmental restrictions in the Hebei and Delta regions. Yangtze. The data show that BHP's Newman pulp is increasingly preferred to the Rio Pilbara Blend blend because it contains less undersize materials and demand pressures have limited sieving capacity in the main Hebei ports. has become a material of choice because you do not need to treat it before it's placed in a steel blast furnace. Fine products that have been recognized as benchmarks for prices require sintering before being put in an oven. This process requires coke, which is a reduction of metallurgical coal. Coal becomes coke in a coking plant. It is a process that is predictably polluting and has been very specifically targeted in the old and new pollution control regimes announced.

BHP's confidence in the lump-sum chapter of the iron ore price stratification was expressed to invest 3.5 billion US dollars ($ 4.3 billion) in a new mega-mine called South Flank. One of its many consequences is that BHP will increase its production capacity of pieces by about 70 percent or 30 tons a year. And this is not an accident. It's BHP that pursues a value-based approach to volume that boss Andrew Mackenzie has since he took office five years ago.

Investment Decision

The extension of anti-pollution measures announced Wednesday by China offers a rapid reinforcement of BHP's investment decision and the speech presented by the leader of Rio on the iron market last month.

The impact of the implementation of environmental policy and supply reforms have resulted in an increase in capacity utilization and increased profitability of the industry in iron, "said Simon Farry, president of Rio Iron, in turn, the focus has been on the profitability of steel mills and the preference for high quality iron ore products that has been so clearly demonstrated in the market.In the absence of justification for the Chinese authorities to reverse or relax the application of their policies, we expect that the productivity goal remains in place for the foreseeable future

"This will help maintain the quality of iron ore, and the spreads are well above levels previously observed during periods of excess production and negative profitability. obvious evidence of structural changes in the iron ore market.

The three-year plan announced Wednesday was consistent with Farry's course of action. The first steel hubs and, for the first time, extended pollution control measures beyond industrial areas and at the heart of the metallurgical coal and coke supply of China, Shaanxi and Shanxi.

After changing the way the trucking industry routines coal and iron ore by overloading it, the government has now indicated that it wanted just about everything that move on the rail. produce 270mtpa of steel, have been told to use trains for all of their iron ore needs by 2019 while other regions were given to 2020 to reach a target of more than 50%

The plan also apparently targets the coking plants of merchants around Beijing, Tianjin, Hebei and surrounding areas. The goal is to accelerate the transfer of coking capacity to areas beyond the reach of pollution.

It has already begun in the steel industry where factory owners are negotiating capabilities that allow them to close their doors. areas that have been targeted by the scheme in exchange for approvals to create new capabilities in other regions.

The most favored destination for relocation would be the Pearl River region in the far south of China. Steelmakers are outside the restricted areas, have access to many port and rail infrastructure, are close to major manufacturing bases, and are able to gain competitive advantage by landing Australian raw materials at lower cost. {
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