An article in the 26 August Wall Street Journal, China Rethinks Deals for Resources highlights how China may be rethinking its investment in large foreign natural resources projects due to challenges faced by Chinese owner Citic Pacific on the Sino Iron project in Pilbara, Australia.So why is China interested in securing foreign sources of iron ore? Mainly because domestic production falls far short of demand:
The project is currently three years late, approximately $6B over its original $2.5B budget, and recently ran into problems while commissioning gearless drive motors on the autogenous grinding (AG) mills, further delaying start up. For perspective, these are the largest mills in the world with each of the AG mills (there will eventually be six) 12.2 m in diameter and 10.3 m long, each with a 26 MW gearless drive.
Sino Iron AG mill being unloaded:
While Chinese steel demand remains strong:
In fact, China annually consumes approximately 1/3 of the world’s steel.
Will the problems encountered on the Sino Iron project dampen Chinese enthusiasm for investing in foreign mines? Only time will tell.