China has an opportunity to buy up overseas iron ore assets, according to a China Securities Journal report seen by Kallanish. This is due to the low cost of iron ore following massive overseas capacity investments combined with high Chinese demand. Resource security, the cheap availability of struggling projects and the need to lower the average cost of domestically-owned iron ore resources should fuel this “going out,” the report argues.

The big four global miners have been able to force out competition by accepting lower prices this year. The journal calculates that in May 2014, the cost of bringing ore to the Chinese coast was around $40/tonne for Rio Tinto and BHP Billiton, $50/t for FMG and $55/t for Vale.

Costs for the rest of the world averaged over $60/t, with mines in Mexico, Chile, Iran and parts of West Africa over $100/t and some Chinese domestic mines seeing equivalent costs as high as $120/t. Prices, which are now hovering around $80/t, have meant much of this high cost capacity has closed down.

However, Chinese demand is expected to remain high, even if the rapid growth of recent years has come to an end. Furthermore, the high cost of available resources in China and the restrictive policies of the 12th five-year plan mean that domestic supply is unlikely to ever top 400 million tonnes of saleable concentrate.

China’s average iron ore production cost over 2011-2015, on a 62.5% Fe fines-equivalent basis, was around $76.8/t, according to the journal. Some African projects, with infrastructure installed, have costs including shipping to China of around $70/t, meaning they will still theoretically pay for themselves at current low prices, the report argues.

With the support of international investment, including development assistance for African countries, China has an opportunity to reduce its cost risk for the net cycle of economic growth, the report concludes.