CAPE TOWN (miningweekly.com) – Chinese iron-ore buyers are unhappy at being at the mercy of the world's three biggest iron-ore companies, but there is not much they can do about it, says Raw Materials Group senior partner Magnus Ericsson.

Ericsson, who spoke at the Mining Indaba, says that China, which is negotiating new iron-ore benchmark prices, is finding itself in a position of having to import more iron-ore.

The big three iron-ore producers are Rio Tinto and BHP Billiton of Australia, which are looking to merging their iron-ore interests, and Vale of Brazil and indicative of the benefit that iron-ore and other mining activities offer to the Australian and Brazilian economies is the speed with both countries have managed to weather the recessionary storm.

Global economist Dr David Hale of the US, who also spoke at the Mining Indaba, says that China currently accounts for a quarter of Australia's exports, compared to 12% 18 months ago, and Brazil is heading for a 5% growth rate in 2010.

Hale says that in eight years there will be more than 100 companies on the Australian stock exchange that will be 50% Chinese owned, including 20 iron-ore companies, six uranium companies and 12 copper-and-gold companies.

Ericsson, a professor of mineral economics at Lulea University of Technology in Sweden, says that imports of iron-ore have increased into China even though steel production has slowed, which points to a deterioration of the quality of Chinese domestic iron-ore.

Ericsson is sceptical about news reports of new iron-ore discoveries in China and at the present rates of depletion of existing Chinese iron-ore mines, he is convinced China will not have sufficient iron-ore within China.

"The major companies will continue to have a very strong domination over China," he says

He anticipates a slower rate of economic growth in China in the next ten years than in the last ten years, but with iron-ore demand surpassing two-billion tons in 2014.

He says that high transport freight rates for seaborne traded iron-ore, linked to the high pre-meltdown prices, in the past protected Chinese iron-ore producers, who are now being fully exposed to the rigours of international competition.

Ericsson says that the iron-ore business, more so than the mining industry in general, has traditionally made very little effort in research and development, which will be necessary in the next decade.

The expects price levels demand more efforts in research and development and believes that any iron-ore miner that decides to introduce the research-and-development process will have definite competitive advantage.

He says that mechanised-mining initiative of the emerging Australian mining company Fortescue is a good example of a iron-ore mining company that is poised to benefit from research-and-development.

Ericsson anticipates a reduction of steel intensity in China, as many in eastern China have attained levels of per capita steel consumption close to the consumption levels of Europe and North America.

It would, however, take some time for the western parts of China to follow suit.

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