China mulls iron ore subsidy as market rout continues

The Chinese government is drawing up plans to subsidise the country’s iron ore sector in wake of the wider market slump, according to an official channel.

The Shanghai Securities News, a state website, said the government would “soon publish” new policy initiatives aimed at providing financial support to sector but did not provide any further details. China has already agreed in principle to reduce its domestic tax burden on iron ore miners.

The world's largest producer of steel is not only fretting on its reliance on foreign, mainly Australian, iron ore imports, but also about serious market headwinds buffeting domestic producers.

With prices down by around 60% on an annualised basis, over half of China’s iron ore miners are operating at a loss. On Wednesday, benchmark iron ore for immediate delivery to Tianjin, China was trading at $47.60 per tonne, up 1.9% from its prior close of $46.70.

It remains a far cry from the average price of $135 seen over the first quarter of 2014, with no reprieve in sight according global investment banking firm Jefferies

In a note to clients, Jefferies noted: “As we had expected, the iron ore price has fallen below $50 per tonne. Fundamentals are weak and the price is likely to stay lower for over two years.”

While Chinese producers are struggling, Jefferies said shares of the big iron ore miners such as Rio Tinto, BHP Billiton and Vale have been resilient to the most recent decline in iron ore, even if their resistance may not last over the near term.

All three of the aforementioned have mapped out a seven-year plan to add 430m tonnes of new supply onto the sea-borne market by 2020.