China's dependence on iron ore imports has grown as its economy and steel production have boomed. Its demand for iron ore has grown extraordinarily fast, and while China is a major producer of iron ore, its domestic iron ore generally contains one-third as much iron (or less) per unit as higher-grade iron ore provided by Brazil and Australia. Imports are thus a less costly way to meet demand, especially when shipping rates are cheap. China has bridled against its growing dependence on foreign resources and against rising prices of iron ore on international markets, believing that it deserves more of a say in determining prices due to its immense demand. Unfortunately for Beijing, it has no alternative to importing the iron ore: It cannot embrace a slowdown for its steel-making industry or overall economy without risking socio-political instability. And this means the three major global iron ore producers — BHP, Rio Tinto and Vale — have the advantage when negotiating prices. China's strategy to reduce foreign dependency involve expanding mergers and acquisitions abroad, boosting domestic production and stockpiles, consolidating its fragmented steel sector and reshuffling the industry's leadership to present a united front in negotiations. But these plans will not be enough to make China independent. Meanwhile, Chinese steelmakers are seeing their profit margins eroded by rising input costs, presenting a threat to the industry's stability that will likely necessitate greater government financial support.
