Chapter 304: The Man Who Shook the Global Iron Ore Landscape!
Seeing Lu Chenyi's grave expression, Bao Yanyao had already anticipated that this year's iron ore negotiations had not yielded positive results.
"It seems things didn't go smoothly. But that's fine—tell me exactly how it went," Bao gently encouraged.
Lu Chenyi wasn't feeling guilt or shame, nor was he troubled enough to lose sleep. Given his temperament, if he hadn't had a strong mental capacity, he wouldn't have been able to lead Haigang Steel to its current heights.
"Compared to last year, we've made some progress," Lu offered a self-mocking smile.
"Progress is always good," Bao laughed along sympathetically.
"Last year when we attended the negotiations, the foreign producers had already finalized prices with Nippon Steel. We had no choice but to accept their price," Lu said bitterly, his smile stiffening slightly. "At least this year, we were able to directly discuss pricing face-to-face with the Big Three iron ore giants. With Vale, we even managed to secure some minor discounts."
Vale produced over 100 million tons of iron ore in the first half of this year, though only about 20 million tons reached China. Most of Vale's production went to steel companies in Japan, Korea, and Europe. Thus, Chinese steelmakers paid more attention to negotiations with BHP Billiton and Rio Tinto. After all, Australian ore constituted the majority of China's imports.
"What about BHP Billiton and Rio Tinto? What prices did they offer?" Bao asked directly. This was the question every steelmaker in the country was eager to know.
"BHP Billiton fixed their fines price at 61 dollars per ton. Other companies set prices around this number with minor variations depending on quality," Lu answered, visualizing the disappointment on the faces of countless steelmakers. "As for lump ore, prices naturally are considerably higher than fines, with slight variations among suppliers."
Saying this, Lu handed over a pricing chart indicating the detailed prices proposed by each iron ore producer.
BHP Billiton's pricing was based on their 62% Fe-content iron ore fines, establishing the international benchmark index. Other companies followed suit, using the same pricing formula but adjusting slightly for differences in ore quality. Higher-grade ores commanded higher prices, while ores with higher impurities naturally received discounts, given their negative impacts on blast furnace operations.
When Bao Yanyao heard the 61-dollar-per-ton figure, internally he was shaken, though his aged face revealed nothing, maintaining composure and dignity.
"That's a steep increase," Bao eventually remarked hoarsely.
"With such iron ore prices, our steel industry's profit margins will shrink dramatically," Lu Chenyi added soberly, fully aware of the economic implications. He knew clearly that with ore prices this high, steel production alone could hardly generate substantial profits. Only downstream steel product manufacturing, particularly high-tech products, offered any genuine pathway for future growth.
"How did they justify such a high price?" Bao questioned—not doubting Lu's negotiating ability, but genuinely puzzled by the severity of the price increase and its adverse impact on China's steel sector.
"Same as last year—Nippon Steel from Japan first settled a price with Rio Tinto. Once that contract was signed, we had no choice but to accept the price passively," Lu admitted with frustration.
Had Korean and Japanese companies not quickly conceded, he could never have accepted such outrageous pricing. The Big Three iron ore giants were essentially exploiting the global steel industry to the extreme!
"What's Haigang Steel's position?" Bao asked.
"Rio Tinto and BHP Billiton informed us we could opt out of long-term contracts without worrying about supply disruptions. They promised ample ore supply would still be shipped to Chinese ports, though at spot market prices."
"They're eager to sell at spot prices?"
"Absolutely. Last year's practice clearly showed they have no concerns about ore sales, preferring to sell as much ore as possible at spot-market prices."
"They really think they've got us cornered!" Bao snorted.
"I don't know where their confidence comes from, but they firmly believe demand growth next year will outpace their production increases," Lu said grimly.
"How do they know next year's steel production plans or domestic demand forecasts so accurately?" Bao wondered suspiciously.
"I suspect they've obtained detailed insights into our domestic steel industry data; otherwise, they wouldn't confidently propose such dramatic price hikes," Lu hypothesized. Better market intelligence clearly gave them substantial leverage in negotiations.
"International mining giants indeed operate strategically," Bao acknowledged bitterly, aware of the negotiating imbalance. The giants were exploiting a fundamental reality: China's powerful infrastructure demand ensured continued, growing steel consumption. This strategic insight allowed iron ore producers to hold China's steel industry hostage.
"We can't avoid buying their iron ore unless a viable alternative emerges," Bao sighed.
"Thus, Haigang Steel has notified the Big Three suppliers that we'll soon sign long-term supply contracts for next year," Lu conceded. Refusal wasn't an option. Without these contracts, all steel mills competing on spot markets would further destabilize iron ore prices. Fortunately, Haigang Steel's proximity to the coast, ownership of port facilities, and integration into downstream processing provided strategic advantages that minimized operational risks.
Bao nodded slowly. "Since price increases are inevitable, we must adjust and adapt. We'll immediately inform our steel association members of the negotiation outcome."
…
"President Wu! Fancy meeting you here!" Shen Wenhua exclaimed upon boarding the plane and recognizing his seatmate.
"You're heading to Beijing for the Steel Association meeting too?" Wu Yueming guessed immediately.
"Of course. I suppose you are too," Shen smiled, crossing his legs comfortably.
Fengli Group and Shagang Group both hailed from Jiangnan Province, an economically prosperous region benefiting from abundant waterways, strategic coastal ports, and proximity to financial and technological hubs. Jiangnan Province boasted many famous private enterprises and celebrated entrepreneurs, among which Wu Yueming's Fengli and Shen Wenhua's Shagang stood out prominently.
"Chairman Lu of Haigang Steel went to negotiate this year's iron ore prices. He must have a result by now," Wu chatted easily. "Let's hope this year brings good news."
"The key is controlling iron ore prices to avoid the chaos of everyone desperately outbidding each other on the spot market," Shen expressed genuine concern.
"Your Shagang Group did well this year. Thanks to large contracts signed last year, your ore costs remained stable at around 40 dollars per ton. Companies like ours, lacking sufficient long-term contracts, have been stuck buying spot ore at over 60 dollars per ton," Wu lamented mildly. "You Shagang folks have enjoyed feasting on profits, while smaller mills can only nibble on scraps."
"Your Fengli Group's main focus isn't steel smelting anyway, right? Your stainless steel and high-end steel products remain highly profitable," Shen modestly deflected, though inwardly proud that Shagang's foresight had secured cheaper ore last year, giving them a competitive advantage.
Wu acknowledged, smiling, "Still, you're impressive, President Shen—your strategic vision predicted iron ore market volatility and secured large-scale contracts early. That's admirable."
Both men exchanged polite business compliments. As industry leaders and high-profile entrepreneurs, mutual praise came naturally.
Wu shifted the conversation to business specifics: "President Shen, will your Shagang Group expand production next year?"
"It's no secret," Shen responded casually. "Your Fengli Group is expanding too, correct?"
Wu nodded openly, "Infrastructure continues to drive economic growth; steel production still holds tremendous promise."
"But if government policy tightens, or iron ore prices remain high—like this year's spot prices—steel production margins become dangerously thin," Shen cautioned.
"You have broader industry insights, President Shen. Are you pessimistic about steel's future?"
"Not pessimistic—just acknowledging intensified competition, especially with newcomers like your Fengli Group entering the market," Shen admitted frankly.
"Come now! No one could threaten Shagang's dominance," Wu laughed warmly.
"What's your prediction for this year's iron ore negotiations?" Shen asked seriously.
"Those overseas capitalists are ruthless; they'll seize any chance to raise prices. The only question is how much."
"If prices rise to around current spot prices—around 60 dollars per ton—the industry could face a crisis."
"That scenario is entirely possible," Wu admitted grimly.
"At that price, iron ore suppliers would be making astronomical profits!" Shen shook his head bitterly.
"I hear your Shagang Group recently invested heavily in iron ore exploration projects abroad?" Wu suddenly asked, shifting gears thoughtfully.
"In the past, steel production made money, and iron ore production lost money. Now, the situation seems to be reversing. If iron ore prices continue to rise, steel smelting could start losing money. When that happens, thousands of steel mills and millions of workers in our country will essentially be working for foreign iron ore giants," Shen Wenhua lamented deeply.
"Let's hope it doesn't come to that," responded Wu Yueming. His Fengli Group had just recently expanded into upstream steel smelting and had barely adapted to the industry. Observing the swiftly changing dynamics, he silently contemplated accelerating his company's plans to enter resource extraction and secure iron ore supply in advance.
…
Inside the enormous conference hall, steel industry representatives from across the nation had gathered. They sat anxiously, expectantly waiting for news from the recent iron ore negotiations.
Some representatives, having heard rumors beforehand, sat quietly with heavy expressions.
Seated in the front row, Lu Chenyi spotted Niu Fu looking around cheerfully for his seat. "President Niu, you're here too?"
"I'm just passing through Beijing on business. Figured I'd stop by with people from our trading subsidiary to see what's going on," Niu Fu replied happily.
"Your Wukuang Group doesn't even operate steel mills. Why come here? Just to watch the show?" Despite his dissatisfaction with the iron ore price of $61 per ton, Lu Chenyi maintained his composure.
"We're Steel Association members, we got an invitation!" Niu Fu glanced down at his ticket, found his seat towards the back, and politely excused himself.
Lu Chenyi's secretary leaned closer, whispering discreetly, "Wukuang's trading arm signed a long-term iron ore supply contract last year for over ten million tons. They've resold it domestically to smaller steel plants without import licenses at prices even higher than spot-market rates, making a fortune."
"Really?" Lu Chenyi was taken aback.
"These trading companies don't even produce steel, yet they earn far more profit than steelmakers who struggle daily. They've gotten very rich this year from iron ore," the secretary explained quietly.
"No wonder President Niu looks happier than usual today. He probably hopes iron ore prices go even higher, giving him more room for arbitrage."
"I suppose it's a situation of winners and losers. Still, the biggest beneficiaries must be the foreign iron ore giants."
The whispers ceased as Bao Yanyao, sitting at the podium, cleared his throat loudly.
After a lengthy introduction about China's steel industry's status and future—during which some attendees almost dozed off—Bao suddenly addressed the main topic:
"Haigang Steel, as representative of our domestic steel industry, participated in the global iron ore negotiations. After strenuous efforts, they achieved a relatively acceptable outcome. Taking BHP Billiton's ore as a reference, the long-term contract price for iron ore fines next year is set at $61 per ton (CIF)…"
"$61 per ton!?"
"This price is nearly identical to current spot prices at the ports!"
"At these prices, where will we steelmakers find any profit?!"
"Absolutely not! The foreign iron ore suppliers are utterly greedy!"
"This represents a 70% increase from last year's price!"
"How did Haigang Steel negotiate this deal? How could they accept such a price?"
"I always said it shouldn't be negotiated by a single representative. Haigang Steel probably doesn't even care; they've likely signed private deals at lower prices."
"Our Steel Association says we're the world's top steel producer, yet we accept such exploitation? Ridiculous!"
"State-owned firms can manage through subsidies and preferential policies. But what about us private enterprises? We're doomed!"
"Inland steel mills already bear high transportation costs. Now with ore prices rising this steeply, we won't even have money to pay our workers!"
The moment the price was announced, before Bao Yanyao could detail specifics, the large hall erupted into anger and shouting. Strong objections, condemnations, and bitter criticisms nearly raised the roof. A 70% price increase represented a devastating blow to steelmakers' profitability, plunging the entire room into gloom and despair.
Bao Yanyao had anticipated this intense reaction and thus remained composed, seated patiently until the outrage subsided. This result wasn't Lu Chenyi's fault nor that of any single company; the blame lay collectively on the entire industry's overdependence on imported iron ore. Lu Chenyi, too, remained silent, knowing media and experts would thoroughly dissect these results soon enough.
After several minutes, the commotion gradually quieted. Everyone had vented their anger and settled back into silence.
Deciding not to dwell further on negotiation specifics—knowing it would only fuel the discontent—Bao shifted toward practical solutions:
"Given the sharp iron ore price increase, our association and industry experts propose several concrete measures. To prevent foreign ore producers from holding us hostage, we must significantly increase domestic iron ore production. Many domestic mines closed during the past downturn. Now, with current ore prices, it's economically viable to reopen these mines. Many of you here hold iron ore rights—if conditions permit, it's crucial to boost production domestically, combining internal and external resources for healthier industry growth."
"But no matter how much domestic production rises, local ore prices always remain higher than imports!" someone protested from the crowd.
Indeed, historically, domestic iron ore prices always tracked imports, typically maintaining a 10% premium.
Another voice added, "Small steel plants like ours have neither the capital nor capacity to develop our own mines."
Ignoring scattered dissent, Bao pressed on, "We know imported ore is irreplaceable, particularly from the Big Three producers. Yet recent years have shown us they're no philanthropists—they'll always strive to maximize their profit, squeezing our margins."
He paused briefly, glancing towards Lu Chenyi seated in front. "I must commend Haigang Steel here—they invested substantially last year in domestic iron ore exploration projects, partnering with geological survey teams nationwide, achieving promising initial results. They recently discovered a large iron ore deposit in Neimeng!"
Seated next to Bao, someone took initiative, starting a polite but lackluster applause. The hall reluctantly followed. The attendees' spirits, already dampened by the $61-per-ton ore announcement, left little enthusiasm for celebrating small victories.
"I understand exploration can't immediately solve short-term needs, but it's an essential, effective step," Bao insisted firmly. "To free ourselves from the Big Three's iron grip and secure our industry's future, we must control upstream iron ore sources! Our current domestic reserves remain insufficient. Increased investment in exploration is a strategic necessity—not just for regulators but every steel enterprise."
Again, only mild applause and nodding acknowledgment followed.
Bao looked toward the third row, noticing Niu Fu, "Besides Haigang Steel, I want to particularly commend two other enterprises. First is Wukuang Group…"
Mention of Wukuang instantly drew scornful murmurs throughout the audience, drowning Bao's next words:
"What? Seriously?"
"The reason ore prices are driven so high is precisely because of traders like Wukuang! They import ore without refining it, reselling at inflated prices to smaller plants. They profit wildly, but we suffer tremendously!"
"How can anyone praise such a company? Are you blind?"
Criticism echoed throughout the hall. To steelmakers, trading firms represented exploitative middlemen profiting effortlessly off their hard work. Importing tens of millions of tons yearly, they profited billions without lifting a finger. Steel mills, meanwhile, toiled endlessly to barely break even.
Bao waited calmly, patiently until the uproar subsided, clarifying firmly, "Perhaps you're unaware that Wukuang Group invested in Cruiser Investment, the controlling entity of an Australian-listed iron ore company."
"Ah, you mean Lianying Mining. Everyone knows about them," someone responded dismissively.
"But Lianying Mining isn't controlled by Wukuang—they're controlled by Litang Prosperity Holdings, led by Li Tang!"
"If you want to praise someone, praise Li Tang himself!"
"Truthfully, that company's got potential. We've seen plenty of news lately but didn't pay much attention. Who would've thought iron ore would spike this dramatically?"
"If it's domestically controlled, can't we get discounts later?"
"Is Li Tang here today?"
Previously, many had dismissed Lianying Mining as a joke, questioning Li Tang's sanity for investing in iron ore at historically low prices. Now, hindsight revealed Li Tang's prescience—a visionary investor perfectly timing the market bottom.
Seeing their familiarity with Lianying Mining, Bao didn't elaborate further. Instead, he asked loudly, "Since everyone's familiar with Lianying Mining, have any of you paid attention to two recent key developments involving them?"
Attendees exchanged puzzled glances, clearly unaware of these recent events.
Recently, everyone had been extremely busy with their steel mills, constantly rushing between ports and factories. The iron ore prices changed daily, and there was no guarantee they'd even be able to secure enough supply, causing great anxiety and exhaustion among all of them.
No one had the time to follow international news.
In fact, domestic media had intermittently reported updates about Lianying Mining. However, due to their overwhelming workload, few had paid attention. Even if they had briefly seen such reports, they didn't explore further, since the company seemed distant from their immediate concerns.
Noticing everyone's silence, Bao Yanyao took the initiative to introduce, "Shortly after the Lunar New Year, several authoritative media in Australia, including the Australian Financial Review, reported a significant exploration breakthrough made by Lianying Mining."
He paused, observing everyone's curious expressions before continuing: "We all know that Lianying Mining previously announced the discovery of the Qiqie Iron Ore deposit in Australia's Pilbara region, comprising two main ore bodies named Shuidao and Yumi. The total reserves reached approximately 1.2 billion tonnes with high-grade iron ore content. Subsequently, the company promptly presented a development plan. Currently, the Shuidao mine is already constructing a mining camp and power plant and is expected to begin iron ore extraction very soon."
Most people had heard about this to some extent and discussed it briefly before. After all, this was one of the rare examples of a Chinese company successfully going abroad, securing mining rights, and obtaining controlling shares in an overseas mining company.
Initially, people hadn't taken it seriously, but now, with iron ore prices skyrocketing, everyone clearly saw the massive profit potential within the iron ore trade. Many companies had begun to consider the possibilities of expanding abroad.
Without a doubt, Lianying Mining had become a model case for them to study. At least until now, Lianying Mining's strategy appeared successful. If they could genuinely start production and begin selling iron ore for profit, this would undeniably represent an unprecedented milestone.
"When will they start supplying us with cheaper iron ore?" someone couldn't help but ask aloud.
"According to Lianying Mining, the Shuidao mine will begin operations as early as 2005," Bao Yanyao casually answered before continuing. "According to recent reports and exploration results published by Lianying Mining, they've discovered another iron ore deposit at the northwestern end of the Hamersley Range called Xiuluo. This deposit also consists of two major ore bodies, with total reserves estimated at 1.1 billion tonnes! Moreover, the company's geologists predict that within their exploration area, there's at least an additional 5 billion tonnes of potential iron ore resources!"
Hearing this, the audience immediately erupted in astonishment.
"Another iron ore deposit with 1.1 billion tonnes?"
"Potential reserves of 5 billion tonnes?"
"Even without considering the potential resources, just the proven reserves of these two deposits already amount to around 2.3 billion tonnes! If we include the actual extracted iron ore, that total could easily surpass 4 billion tonnes! Considering China imports about 200 million tonnes of iron ore annually, these two deposits alone could meet our entire iron ore demand for more than 20 years!"
"If Lianying Mining's production capacity could match our demand, we wouldn't need to rely on those overpriced ores from the Big Three!"
"If it ever comes to that, international iron ore giants would be begging us to buy from them!"
"If production ramps up smoothly, this company could genuinely affect global iron ore pricing."
"If their ore quality is good and the price reasonable, of course I'd prefer to support our own people. Better yet, drive those greedy foreign producers out of business!"
"This company has discovered two giant iron ore deposits in quick succession, and from the published data, their iron ore has low sulfur and phosphorus impurities. It's a pity such rich deposits aren't located within our country."
"Is Li Tang here today? He should stand up and tell us when he'll ship iron ore to our ports. And let's negotiate some price discounts—not because we're greedy, but because foreign producers have taken advantage of us too much!"
The audience was becoming increasingly excited.
These attendees, mostly top executives or company leaders, were knowledgeable and experienced. Witnessing someone from their country acquire a foreign-listed company, with high prospects of success, filled them with pride and excitement. They all now wanted to know Li Tang, the man who might revolutionize the global iron ore market.
In the future, any decision by Li Tang could dramatically disrupt the global market. This was someone who could make the earth shake just by stomping his feet. Establishing connections with such an influential person meant no longer worrying about future iron ore supplies.
Bao Yanyao knew Li Tang hadn't attended today's meeting. The Steel Association had sent an invitation to Litang Prosperity Holdings, but received a reply stating Li Tang was currently overseas. This was somewhat regrettable, given the present enthusiasm. Everyone was eager for Li Tang to personally share his experiences managing overseas iron ore projects.
"Li Tang is currently abroad managing exploration projects, so don't look for him here," Bao explained calmly, as people continued calling Li Tang's name. He then continued elaborating on Lianying Mining. "With iron ore prices continuously rising and the recent discovery at Xiuluo, Lianying Mining's share price jumped from 30 Australian cents at the beginning of the year to 50 cents, pushing the company's market capitalization from 400 million to nearly 700 million Australian dollars in a very short period!"
Seven hundred million AUD equated to roughly 4 billion Chinese yuan—not a massive number for these large steel enterprises. Given favorable conditions, they could even consider buying the whole company. But considering Lianying Mining's substantial reserves and current iron ore market enthusiasm, this market valuation seemed somewhat undervalued.
Lu Chenyi quietly instructed his assistant, "Contact Li Tang after the meeting. See if we can offer him help. Last year, he returned to China seeking investment, and according to Niu Fu, faced considerable difficulties. If he needs support in funding, technology, or sales, we're willing to assist."
"Understood, Director Lu. I'll reach out immediately after the meeting."
"I remember meeting Li Tang several years ago. He was just an ordinary technician, accompanying Zhao Hepu from Wukuang Group to attend a nonferrous metals industry award event. He was very young and inexperienced then. Now, just a few years later, he's truly matured."
Lu Chenyi vividly remembered Li Tang, largely due to hearing this name repeatedly, which continued to deepen his impression. He couldn't help softly reciting a famous line of poetry with emotion, "When the great Peng bird rises with the wind, it ascends ninety thousand li."
Every time he heard Li Tang's name, it was always accompanied by some astonishing development. Initially, he thought Li Tang excelled mainly in copper-gold exploration, having even received accolades in that area. Yet now, this young man seemed poised to influence the future of over a thousand Chinese steel enterprises—perhaps even the entire steel industry—and challenge the authority of the three iron ore giants!
Having personally experienced two frustrating years of negotiations with these arrogant giants, Lu Chenyi desperately hoped for a young dragon-slayer to rise, wielding a righteous sword. Those international giants had been complacently positioned at the top for far too long!
The audience's intense discussion eventually settled down. Bao Yanyao used Lianying Mining as a prime example to encourage domestic steel companies to invest in resource exploration—an essential, sustainable investment crucial to their industry's future.
After the hall quieted, Bao resumed, "Lianying Mining's market capitalization recently surged again from 700 million Australian dollars, approaching 1 billion!"
The audience gasped again in astonishment.
Bao raised two fingers, continuing firmly, "This recent surge has two main causes. First, Australian markets likely anticipated this year's iron ore price hike, causing iron ore stocks generally to rise. Secondly—and more importantly—Lianying Mining recently signed a ten-year iron ore supply agreement with a domestic steel company, receiving a ten million US-dollar upfront payment! This contract officially marks the beginning of their iron ore sales, significantly attracting investors."
"Which domestic company?" everyone eagerly wondered.
Bao Yanyao directly announced, "The second company deserving commendation today is precisely that steel enterprise—Hualing Steel!"
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