Chinese leaders have signalled they will continue to support investment in iron ore in Western Australia, despite the recent slump in demand for the bulk commodity.
Beijing’s most powerful economic planning agency – the National Development and Reform Commission – is considering more policy support for Chinese companies struggling to get overseas projects off the ground.
WA’s iron ore sector has been challenging for several Chinese iron ore aspirants, with infrastructure difficulties and skills shortages leading to cost and schedule overruns.
Most notable has been CITIC Pacific’s Sino Iron project, which is now involved in a court battle with its local partner Clive Palmer.
But a senior official from the NDRC told Chinese companies on the weekend that they should not be deterred.
‘‘[Investment activity] must not slow down as a result of recent short-term economic challenges,’’ said Wang Jianjun, deputy head of the overseas investment division of the commission, according to Chinese media. ‘‘The real task is to prepare for the iron ore demand in the next five to ten years.’’
While he did not name names, Mr Wang said some magnetite projects were likely to cost astronomical sums to develop.
‘‘Many projects are low quality or magnetite, the development cost per tonne of ore could be as high as $300,’’ he said.
Sino Iron is a magnetite project, while China has also backed the Karara magnetite project being developed by Gindalbie Metals near Geraldton.
Mr Wang said China would still need to import more than half of its iron ore by 2020 and development of Chinese-owned mines was crucial in breaking the supply stranglehold enjoyed by three big miners: BHP Billiton, Rio Tinto and Vale.
He told Chinese media the government would offer more support to companies investing in iron ore assets abroad.
BHP, Rio and Vale control more than 70 per cent of the seaborne iron ore market.
Chinese authorities forecast the country will still need more than 1.2 billion tonnes of iron ore per annum by 2020.
Beijing has poured more than $10 billion into iron ore investments in the last five years, mainly in WA, Canada and West Africa, but has been limited production so far.
The lack of infrastructure has been blamed as a key reason holding back Chinese companies.
‘‘The need to build basic infrastructure such as water, electricity, rail and ports are key factors constraining the production capacity of iron ore mines,’’ said Mr Wang.
Mr Wang said Chinese companies were not adequately resourced to meet the infrastructure costs of overseas projects.
Big ticket projects in the new iron ore province of West Africa are also running into significant infrastructure cost problems.
The Simandou project in Guinea – which is a joint venture between Rio Tinto and Chinese company Chalco – is expected to require $10 billion in rail and ports to get it ready for export.
Once seen as one of Rio’s most important growth projects, Simandou has faded from prominence.