It is reported that Chinese enterprises in queue for overseas M&A gasped at the failure of Chinalco-Rio deal, but apparently, they didn't decide to slow down the paces.
Days ago, WISCO invested USD 240 million to acquire a 19.9% stake in the Canadian mining company and China Minmetals also successfully merged Australian Miner OZ Minerals. However, experts told Securities Daily that overseas acquisition can hardly leverage current impasse of iron ore talk. China had better cut steel output and enhance centralized purchasing to improve pricing power in the game.
1. Domestic Enterprises Surges Out of Home for Resources
Domestic enterprises speed up expansion this year and surges out of home for resources.
For example, Sinosteel bided for Australian Midwest Co., Hunan Valin Iron and Steel Group bought AUD 1.2 billion of FMG share in Australia too CICC Lingnan companies invested in PEM, Yanzhou Coal Mining Co. has taken over Felix Resources, Zijin Mining has been involved with three overseas mining projects, Zhongjin Gold merged Jinshan Gold Mines listed in Canada and Jien Nickel got 19.95% of Australia's Metallica Minerals.
Although Chinalco investment in Rio was held back, WISCO still successfully poured USD 240 million in Canada listed Consolidated Thompson on June 9th. Two days later, Oz Minerals agreed 100% asset sale to China Minmetals.
Statistics showed that 80 million tonnes of the total iron ore import is shipped from China-invested mines. Since February 2009, China's steelmakers and trading companies have strengthened investment on overseas mines especially biding for stakes. According to current paces, China is expected to get over 100 million tonnes of ore resources at abroad.
An analyst of Citic Securities said "This rush of M&A at abroad should be attributed to metal price plunge in last 4Q and credit crisis, which provides opportunities for Chinese corporations to expand at low cost."
2. To Enhance Centralized Purchase is the Key
Generally speaking, stable self sufficiency and enlarging joint mines at abroad should have increased advantages to China in the dead iron ore talk, but people hold different ideas.
Some insiders said overseas M&A can hardly tackle the negotiation problem in the near future. China should learn the experiences from Japan to unify opinions and centralize purchase in the iron ore talk.
Ping An Securities pointed that at present, China annual iron ore import from mines that Chinese firms invested takes over 12% of the total import, but Japan's reaches 53.8%. So, Japan certainly could bear higher term prices than China.
In experts eye if domestic mills desire the real pricing power in the negotiation, they must merge or acquire overseas resources step by step to complementary benefit for each other. Besides, mills should also consolidate themselves, cut steel output to change over-capacity situation in order to reduce the waste of iron ore.
Moreover, we should improve cooperation and cohesion with Japan and South Korea mills to hedge out risks from international iron ore price changes. Meanwhile, to seek support from WTO is also needed. The organization can help to protect fairness in the market by just investigation and settlement.
(Sourced from MySteel.net)
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