The move is aimed at improving air quality, and will eliminate roughly one-third of the iron ore mining licenses in the country.
A Chinese mining association official said the country will cancel 1,000, or roughly a third, of its iron ore mining licenses as part of a plan to improve air quality.
According to Reuters, Lei Pingxi, chief engineer at the Metallurgical Mines’ Association of China, told an industry conference that the cancelations will mostly impact small polluting mines.
The mines were closed down temporarily during a period of environmental compliance inspections earlier this year, Lei said. Iron is a key component of steel, and China is also moving to cut steel production in Tangshan, which is responsible for 11 percent of the country’s output.
Speaking at the same conference, Vale (NYSE:VALE) Executive Director Peter Poppinga commented that the number of iron ore mines in China is declining, and in recent years has fallen from over 3,000 to about 1,900. He added that China is investing less CAPEX in replacement tonnage, meaning that production will continue dropping. Last year, China’s iron ore output fell 3 percent, to 1.28 billion tonnes.
Interestingly, Hong Kong Exchanges and Clearing announced this week that it plans to launch an iron ore futures contract in November, which is the start of the winter heating season in China. The contract will be cash settled in US dollars, with both day trading and after-hours trading.
“With the benefits of electronic trading, our planned Iron Ore Futures will provide a transparent and efficient risk management and investment tool for physical and financial users who want to hedge their price risk or gain exposure in iron ore,” said Li Gang, co-head of market development at Hong Kong Exchanges and Clearing.
Iron ore prices have fallen by almost a third from their 2017 peak, and were trading at $64.95 per tonne on Tuesday (September 26). Earlier this week, Goldman Sachs (NYSE:GS) said it sees iron ore prices falling to about $60. The investment bank noted that prices are “sitting at the intersection between policy and demand,” but enforced steel production restrictions in China are likely to reduce demand.
Citigroup (NYSE:C) expects iron ore to reach $53 in 2018 on rising supply and a slowdown in China. The firm has said that an increase in supply is expected to come from Australia and Brazil.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.