China holds no fear toward overpriced irons (minerals) of Vale S.A. and the Ministry of Land and Resources releases signs of domestic production increase. 

As the zero date (April 1) for the long-term negotiated price on iron ore in the new fiscal year draws near, the debate on 2012 iron ore negotiation becomes heated again. 
The word that Vale S.A. will raise the iron ore price by 90% sparkles a public debate again. It is worth noting that the Ministry of Land and Resources in charge of the national mineral resources releases that the domestic iron ore production in 2009 has reached 880 million tons, and China boasts increased strengths for supplying iron ore. 

Domestic iron ore production last year reached 880 million tons.  

According to media report, Executive Vice Chairman of China Iron and Steel Association (hereinafter referred to as "CISA") Luo Binsheng, when attending an industry meeting, confirmed that the Brazilian mining giant Vale S.A. requested to raise the iron ore base price in 2010 by 90% to 100% in the iron ore negotiation. 

In Beijing about 200 kilometers away from Tangshan, an industry meeting-the report-back meeting of major achievements in national iron ore survey and exploration of the Ministry of Land and Resources was held. 

At the meeting, the Ministry of Land and Resource releases some breakthroughs in iron ore exploration: An identified iron ore reserve of about 10 billion tons has been found in iron-ore-rich areas such as Anshan and Benxi, Liaoning province, east of Hebei province, Yanzhou, Shandong province, west of Panzhihua, Sichuan province, and Lucong, Anhui province. Among these areas, Dataigou iron ore mine boasts a controlled reserve of 3 billion tons, and the estimated reserved is 7 billion tons. The mine is buried deep, but it is easy in mining and dressing. 

In addition, a number of new iron ore reserve areas are developed in China's western region. 

Officials of the Ministry of Land and Resources said, in recent years, China has witnessed increased domestic iron ore supply, from 260 million tons in 2003 to 880 million tons in 2009. 

According to the introduction of the Ministry of Land and Resources, the design capability of iron ore under planning and construction is 480 million tons. With these mines put into production, the domestic iron ore supply will see a steady and sustainable growth. 

As to when the annual 480 million tons iron ore under planning and construction can serve the economic development, an insider told the Chinese Business News that the issue depends on the development progress of mining enterprises. If the price of the imported iron ore is high, the domestic mining enterprises will be stimulated to increase the production. If the price falls down, their enthusiasm will be damped.  

According to analysis by the General Administration of Customs, in the first half of 2009, with the plummeting price of spot iron ore, the production of domestic mines has experienced a sharp decline, and the production halt rate of small-and-medium mines reaches as high as about 70%. By last October, the rate of operation in domestic mine is still turning out low. 

Are we willing to pay an extra price of 260 billion yuan 

In recent years, except for the decline in 2009, the price of imported iron ore is always on the rise. The imbalance between domestic supply and demand, and the high external reliance become key factors in price negotiation.  

According to the statistics by General Administration of Customs, the import of iron ore in 2009 reaches a historical high and totals up to 630 million tons, a year-on-year increase of 41.6%. The total value reaches USD 50.14 billion, down by 17.4% year-on-year. 

The trend is continuing. According to the data released by General Administration of Customs, we imported 49.38 million tons of iron ore, a 5.6% increase as compared with the same period last year. The iron ore import in the first two months this year increases by 21% to 96.07 million tons. 

With such enormous import by Chinese iron and steel enterprises, in case of large price fluctuation, the operation cost of enterprise will at risk.  

According to the estimation of a relevant leader of a large-scale domestic steel and iron enterprise, if forced to accept the price rise, the steel and iron enterprises will have to pay an extra amount of 260 billion yuan. 

As shown by the data of CISA, 68 medium-and-large iron and steel enterprises recorded a profit of 55.388 billion yuan, down by 31.43% as compared to 2008. 
"The fundamental solution to accelerate the development of domestic mines, and increase the self-sufficiency rate of finished product of domestic iron ore," the leader said.
In the report-back meeting, the Vice Minister of the Ministry of Land and Resources said, the central government allocates an addition of 5 billion yuan for strengthening the fundamental work in mining exploration, and 3 billion for the economic and intensive and comprehensive utilization of mineral resources. The central and provincial geological survey foundations are carried out successively with a total amount of 15 billion yuan. Recently, the State Asset Regulatory Commission introduced some policies which stipulates that the 50% of enterprises' exploration expensed will be rebated based on the profit in the review, and has greatly encouraged the enterprises to investment on the exploration of mineral resources. 

Chinese backup 
About 10 billion tons of iron ore are found in areas such as Liaoning, Hebei, Shandong, Sichuan and Anhui.  
The annual design capacity of iron ore under planning and construction is 480 million tons. 
The central government allocates an additional 5 billion yuan for strengthening the fundamental work in mining exploration, and 3 billion for the economic and intensive and comprehensive utilization of mineral resources.