2014-09-28

Chinese Overseas Ore Investments Lose Money

China's rush to buy up resource production overseas is not unlike the Japanese real estate investments in the 1980s. Some resources such as oil will pay off, but many could end up as big money losers should the slowdown knock commodity prices. From a geopolitical standpoint, the investments may yet pay off, but in the near term, the financial hit could be serious for firms and even the government.

After Overseas Rush, Chinese Firms' Iron Ore Projects Run into Trouble
Many Chinese companies have gone abroad to invest in iron ore projects over the past decade, hoping to get more negotiating leverage in prices by taking stakes in projects.

But now the price of iron ore has fallen about 35 percent from a peak of US$ 134.5 per ton at the beginning of the year.

Meanwhile, the world's four largest iron ore producers, Vale SA, Rio Tinto Group, BHP Billiton Ltd. and Fortescue Metals Group, are ramping up production of cheap iron ore.

"Their increasing output will drag down prices," said Li Xinchuang, deputy secretary-general of the China Iron and Steel Association, a trade organization. "Large miners will make a little profit, but this possibly means death for Chinese companies' overseas projects."
Some Chinese projects will have a per ton cost above $300.

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