Australia holds the largest amount of iron ore reserves

According to the U.S.Geological Survey (USGS), world total reserves of iron amount to about 81,000 million tonnes contained within 170,000 million tonnes of crude ore. Australia and Brazil are among the world’s largest iron ore holders and hold a large portion of the world’s iron ore reserves. As of 2013, Australia had reserves of 17,000 million tonnes of iron content and 35,000 million tonnes of crude ore while the figures for Brazil were 16,000 million tonnes and 31,000 million tonnes respectively.

China is the largest iron ore importer

In 2013, world total production of iron ore was 2,950 million tonnes, and saw a very slight growth of 0.03% over the previous year. China is the leading iron ore producer in the world; it produced 1,320 million tonnes of iron ore in 2013, representing 44.7% of world total production for that year. Australia and Brazil were also large iron ore producers with production of 530 million tonnes and 398 million tonnes respectively. 

From Jan of 2005 to Nov of 2014, the price of imported iron ore in China increased from US$28.1 per tonne to US$73.1 per tonne as a result of a surge in iron ore demand caused by increasing steel production. China is currently the largest iron ore consumer in the world with its consumption representing almost half of global iron ore production. From 2004 to 2013, China recorded a 13.0% CAGR in steel production, far higher than the global growth rate. In 2014, it is estimated that China produced 810 million tonnes of steel and consumed 1,300 million tonnes of 62% Fe equivalent iron. 

China is the world’s largest importer of iron ore, buying two-thirds of the world’s seaborne supply, in spite of its leading producer position. Chinese iron ore contains, on average, less Fe content (around 17-20%) than other major producers (with a standard of 62%). China’s iron ore reserves in terms of iron content is 7,200 million tonnes, representing only 8.9% of world total reserves. In 2013, 1,320 million tonnes of iron ore were produced in China, equivalent to only 325 million tonnes of 62% Fe grade iron ore. Consequently China needs to import iron ore to meet its massive demand. 

Oversupply and declining demand lead to price drop in 2014

Rio Tinto (Rio), BHP Billiton (BHP), Fortescue Metal Group (FMG) and Brazil’s Vale S.A. (Vale) are major seaborne iron ore suppliers to China. Rio, BHP and FMG are all Australian based companies with iron ore mining operations in the country, making Australia the largest iron ore exporter in the world. In 2014, some of the biggest suppliers expanded their output and pushed the market into oversupply which led to a decrease of iron ore prices. The iron ore price at Tianjin port plunged to the lowest in five years at US$73.1 per tonne in November of 2014.

Although China saw a 14.7% year-on-year growth in iron ore imports in 2014, it recorded the first November decline in iron ore imports since 1998 in the last quarter. It is forecasted that China’s iron ore year-on-year import growth rate will drop to 6.4%in 2015. The growth will be driven by higher domestic steel output and demand. Real estate and infrastructure construction, machinery manufacturing, natural gas pipeline construction and shipbuilding activities are expected to be drivers for higher steel demand. The Deputy Secretary General of the China Iron and Steel Association forecasted that the iron ore price will stay in the US$70 -80 per tonne range in 2015.

Overview of coal power generation in Asia Pacific countries

Coal is a crucial fuel for the generation of electricity and it is reported that 40% of electricity generated worldwide in 2013 was fueled by coal. Mongolia and South Africa used coal to generate more than 90% of each country’s total electricity in 2013. Coal is also a major source in some Asia Pacific countries; China, Australia, and India generated more than half of their electricity by coal. In Indonesia and Japan, coal is used to generate 48% and 21% of electricity respectively. 

Recent development of coal power plants in Asia Pacific region

A recent report, which analyzed more than 1,800 live projects in 15 Asia Pacific countries, released by Timetric’s Construction Intelligence Center (CIC) shows that coal power plants will maintain a leading role in the Asia Pacific region’s power sector over the coming 10 years. The value of these projects totals US$1,855 billion. Of this amount, US$792 billion (42.7%) will be invested into coal power projects, more than twice the value of nuclear power projects. It is forecasted that the cumulative installed capacity of coal power will be over 1,959 GW by 2025. The report also reveals that developed countries, such as Japan, Australia and New Zealand do not invest greatly in coal power projects for environmental reasons. 

State policy may affect the demand on coal for power generation

Although it is forecasted that coal power will continue to be the ruling power type in the coming decade, state policy in some countries, such as China and Japan, will slow down the growth of coal demand for power generation.

In accordance with the state policy of China on emissions reduction, the installation of new coal-fired power capacity should decrease while the installation of clean power capacity should increase. The National Energy Agency (NEA) predicted that the proportion of coal-fired power will decrease to 70% by 2020 and fall below 50% by 2050. This will inevitably suppress the growth of coal demand. The effects of this plan to decrease the installation rate of coal power has already been observed in the past several years. In 2011, the newly installed coal-fired power capacity was 58,370 megawatts, representing 61.9% of new installation for that year. However, the proportion diminished in the subsequent two years to 57.6% and 38.8% respectively.

According to the Agency of Natural Resources and Energy of Japan, the Government wants to diversify its fuel sources. Actions to achieve this goal include maximizing the introduction of renewable energy, resuming nuclear power generation, as long as safety is assured, introducing high-efficiency thermal power plants (coal and LNG), and developing domestic energy sources (such as methane hydrate). This policy is also a potential threat to coal suppliers for Japan.

中国鉄鉱石市場2015年第一四半期概観

 オーストラリアが最大の埋蔵量を維持

アメリカ合衆国地質調査所に拠れば、世界全体の鉄量の埋蔵量は81,000百万トンで170,000百万トンの鉄鉱石に含まれています。オーストラリアとブラジルが世界最大の鉄鉱石保有国でその埋蔵量も世界最大です。2013年時点で、オーストラリアは17,000百万トンの鉄の埋蔵量が有り、鉄含有量で35,000百万トンです。一方、ブラジルは16,000百万トンの鉄の埋蔵量が有り、鉄量換算では31,000百万トンを保有しています。

 鉄含有量順の鉄鉱石埋蔵量世界トップ５（単位：百万トン） 

 出典：Mineral Commodity Summaries 2014 (アメリカ合衆国地質調査所)

中国は最大の輸入国

 2013年の全世界の鉄鉱石の産出量は2,950百万トンで、前年比微量ながら0.03%の増産を見ました。中国は鉄鉱石の主要な産出国で、2013年には1,320百万トンの鉄鉱石を産出し、同年の世界産出量の44.7%に及びます。オーストラリアとブラジルの同年産出量はそれぞれ530百万トンよ398百万トンでした。

 鉄鉱石産出量世界トップ５（単位：百万トン） 

 出典：Mineral Commodity Summaries 2014 (アメリカ合衆国地質調査所)

 2005年1月から2014年11月にかけて中国の鉄鉱石輸入価格は、鉄鋼の産出量増大に拠り鉄鉱石需要も増し、トン当たり28.10米ドルから73.10米ドルに上昇しました。中国は現在世界最大の鉄鉱石の消費国で全世界の鉄鉱石生産量おおよそ半分を消費しています。2004年から2013年にかけ中国は鉄鋼の生産量で、世界全体の成長率をはるかに超える年平均成長率13%を記録しました。2014年には鉄含有量62％の鉄鋼換算で810百万トン清算し、1,300百万トン消費しました。 

中国は鉄鋼の主要な産出国であるにも拘わらず、世界最大の鉄鉱石の輸入国で海上輸送に拠る輸出の3分の2を買い付けています。中国の鉄鉱石は鉄の概して含有量が少なく（おおよそ17～20％）他の主要な産出国（基準の62％）に比べ少ないのが実情です。中国の鉄鉱石埋蔵量は鉄量にして7,200百万トンで全世界の埋蔵量の8.9%です。2013年には中国で1,320百万トンの鉄鉱石を産出しましたが62％含有の鉄鉱石に換算すると325百万トン相当でしかありません。結果として中国は大量の需要を満たす鉄鉱石を輸入する必要があるのです。

供給過多と需要の縮小で2014年には価格が下方に

 Rio Tinto (Rio), BHP Billiton (BHP), Fortescue Metal Group (FMG) and Brazil’s Vale S.A. (Vale)が主要な中国への鉄鉱石輸入業者です。Rio,BHP及びFMGはオーストラリアの会社であり自国で鉄鉱石を採掘しています。それに拠りオーストラリアが世界最大の鉄鉱石輸出国になっています。2014年には一部の鉄鉱石生産会社が生産を増大させたため、鉄鉱石の供給過多になり価格の下落を招きました。天津港の鉄鉱石輸出価格は2014年11月にはここ５年来最低のトン当たり73.10米ドルまで落ちました。

 中国は2014年に鉄鉱石輸入量は、前年比14.7%増大しましたが、11月始めに1998年最終四半期以来の鉄鉱石輸入量の減少を記録しました。2015年の中国の鉄鉱石輸入量は前年比6.4%落ちると予測されています。輸入量の増加は高い国内鉄鋼の生産及び需要によって引き起こされます。不動産及びインフラ整備、機械製造、天然ガスパイプライン建設と造船が、鉄鋼需要のドライバーとなっています。鉄鉱石の価格は2015年内は1トン当たり70から80米ドルで範囲にとどまるであろうと中国鉄鋼協会の副事務総長は予測しています。

The Supermarket Sector Experienced Rapid Growth in the Past Decade

Since the early 1990s, when the supermarket sector started to open to private and foreign investors, the Chinese supermarket sector has been expanding massively. In 1992 there were around 2,500 supermarkets in China, and following economic growth and urbanization, the number of supermarket increased fourfold by 2002. The growth trend continued and the number reached 38,554 by 2011. The compound annual growth rate from 2002 to 2011 was 15.82%. As a matter of course, sales volume has also increased significantly from RMB131.8 billion in 2002 to RMB339.8 billion in 2011. Today, the Chinese supermarket sector is quite mature and competitive. 

Current Status of Chinese Supermarket Sector

What are the problems with the foreign players?

Foreign companies have been allowed to invest into the Chinese supermarket sector by joint venture since 1991 and permission for the first wholly foreign owned retail and wholesale companies was granted in 2004. According to the China Chain Store and Franchise Association, there were 14 supermarket chains in China’s 2012 top 100 chain stores list. Of these 14 supermarket chains, four are foreign invested including RT-Mart, Walmart, Carrefour and Tesco. The number of stores and sales volume of these supermarket chains has been increasing from 2005 to 2012. 

In spite of the expansion in scale and sales volume, foreign invested supermarket chains face various challenges. Three major factors hinder the further development of foreign invested supermarkets.

1. Poor Adaptation to Local Culture: Carrefour and Walmart, two of the world’s largest supermarket chains, entered the Chinese market in 1995 and 1996 respectively. However, it seems that these companies are still not able to acclimatize to local circumstances. Foreign supermarket chains typically adopt a nationwide strategy and often ignore the huge differences between regions in China. The success of a particular business model in one region does not mean it will fit other regions. For example, these companies usually employ non-local people for the middle and top management positions and consequently, the decisions made often do not answer to local expectations.
2. Losing Competitive Edge over Domestic Players: To begin with, in the 1990s, foreign invested supermarkets enjoyed certain advantages over local competitors, such as tax benefits and preferential right to choose a location. Today governmental policies are less beneficial to these companies, for example, new taxes have been imposed on these companies in recent years. In addition, foreign invested supermarkets used to be better than domestic players in terms of available capital, technical knowledge, and brand reputation, but over the last decade domestic players have managed to narrow these gaps. 
3. Marginalization of General Merchandise Store: Foreign invested supermarkets usually operate in the mode of the general merchandise store (GMS) in high rental areas. These foreign invested supermarkets now have found it difficult to stay in core areas due to their low lease capability. Moreover, the high degree of product similarity in the market has also caused some consumers to switch to other competitors. The mode of general merchandise store is also gradually being marginalized as some domestic players have found success by adopting other strategies. For example, China Resources Vanguard developed high-end quality goods markets and Yong Hui Superstores emphasized fresh products.

Time for Market Transition

There is keen competition in the supermarket sector and many companies have seen a slowdown of profit growth or even recorded negative profit growth. The market players are now finding new ways to reclaim the market. Censere identifies three major trends during the transition in progress:

1. Online Shopping: Following the wide adoption of the internet, online retail has become more and more popular in China. Some players in the supermarket sector have already established their online retail platform. Under conditions of increasing costs, for rent and human resources, online platforms have the potential to open up a new market with lower costs. Large retailers have several advantages in opening up online retail channels. They have higher consumer awareness, greater bargaining power with suppliers, and abundant experience in logistics. Currently, online retail is still in its infancy and market players regard it as a supplementary channel. 
2. High-end Supermarkets: Following the continuous economic growth of China, a group of strong purchasing power consumers has emerged. These consumers are willing to pay more for high quality products as well as lifestyle. Currently, the development of high-end supermarkets is at an early stage. Many markets players, such as Bailian, China Resources Vanguard, and Walmart, have attempted to grow market share and become market leaders by setting up high-end supermarkets. Because product sourcing channels and operational models are still in the exploration stage, and due to high rental costs, high-end supermarkets are not yet profitable. However, the high-end supermarket sector shows considerable promise as the number of consumers with strong purchasing power is growing. 
3. Development of Private Brands: As a result of decreased profit from retailing, many companies have launched private brands in an attempt to grow profits. Low rement costs, and no advertising costs, make the overall cost of private brands much lower than other products. As a result private brands are more competitive than other brands. According to Century Lianhua (a subsidiary of Bailian Group), the retail prices of its private brands are lower than other brands by 20% to 30%. A survey conducted by China Chain Store and Franchise Association in 2011 showed that 39 out of 65 large supermarkets have launched their private brands. It is believed that large market players, with well-established networks, brand awareness, and good access to market information, will gradually strengthen their private brand businesses.