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Arctic shipping

Greenland’s mines could finally attract Chinese investment

Written by Jichang Lulu.

Conditions might be ripe for Chinese investment to finally reach Greenland. Once a hot media topic, Chinese interest in Greenland mining was rather tepid when I surveyed it last March for this blog. Media attention has however remained largely orthogonal to the actual evolution of serious Chinese interest in Greenland: as two projects progress towards production, China Nonferrous, an integrated miner owned by the central government, might be about to become the major player in Greenlandic mining. One of these projects will mine a rare-earth deposit of global importance. The other, a zinc mine, would become the world’s northernmost settlement on dry land. If developed, they could open the door for more investment. As a major SOE, China Nonferrous is explicit about such pioneering role, one that goes beyond its primarily economic motivations.

The Far North

The mining project that looks closest to coming to fruition is the Citronen Fjord zinc and lead deposit. The owner of the license, Australia’s Ironbark, has already applied for an exploitation permit, and a public consultation process that involves meetings in several towns is underway. Vittus Qujaukitsoq, the Greenlandic minister (naalakkersuisoq) whose portfolio includes natural resources, has expressed optimism on the mine’s prospects and hopes it will bring much-needed jobs and tax income.

The mine is planned to employ a few hundred people. Although around 80% will be foreigners initially, documents submitted by Ironbark as part of the permit application claim that they will be “progressively replaced” with local workers. A planned influx of foreign, specifically Chinese, was precisely what made another mining project controversial enough to create a political crisis in 2013, but the smaller foreign workforce demanded at Citronen Fjord, likely to be flown in directly from abroad and hardly spotted in Greenlandic towns, should not generate that level of opposition.

China Nonferrous (中色), through its listed arm NFC (中色股份) entered a partnership with Ironbark through a non-binding agreement that envisages the Chinese company building the mine, facilitating Chinese financing for around two thirds of the cost, and possibly buying a stake in the project. Ambitious though that sounds, China Nonferrous’ commitment to the project will likely depend on zinc and lead prices. These have recently reached multiyear lows, and decreasing Chinese demand for basic metals doesn’t suggest a miraculous recovery is on the way.

If the project goes ahead, China Nonferrous and its partner Ironbark will share the title of world’s northernmost miner. The Citronen site is on Peary Land, at around 83°N and just 800 km from the North Pole. Staff at the mine thus would be staying the world’s northernmost settlement.

The Not-so-far North

Down at the opposite end of Greenland, at a tropical latitude by comparison, near the town of Narsaq, the Kvanefjeld uranium and rare-earth project is also moving towards the exploitation stage and has already started trial production. Kvanefjeld is owned by another Australian company, Greenland Minerals and Energy, also under a similar non-binding agreement with China Nonferrous’ listed arm NFC. The foundations of the partnership seem solid, given that the mine’s output should be a good match for the massive REE separation plant a China Nonferrous subsidiary is building in Xinfeng 新丰, Guangdong, expected to be ready by the end of next year.

China Nonferrous’ little-reported interest in the Arctic also extends to Iceland. Last July, NFC signed a MOU with local company Klappir Development on an aluminium smelter in Hafursstaðir, some 100 km west of Akureyri. The plans have enjoyed the support from the Chinese embassy for a few years now: already in 2013, then-ambassador Ma Jisheng 马继生 (eventually removed from his post, allegedly suspected of spying for Japan) had voiced support for the project; Ma’s successor, Zhang Weidong 张卫东, has discussed the project with local officials, and recently visited China Nonferrous headquarters in Beijing, extolling abundantly the plant and its significance as China’s first major investment of its kind in Iceland.

Pioneers

China Nonferrous’ northerly foray accounts for about all serious Chinese interest in Greenland’s ores for the time being. The other two Chinese-owned mining licenses on the island are all but dormant: Jiangxi Copper’s Wegener Halvø copper site, though historically  significant, is unlikely to see much action in the short term given current copper prices; General Nice (俊安集团) can be expected to keep sitting on its exploitation permit for the Isua iron mine. China Nonferrous is still the largest company with a serious interest in Greenland’s mines. The fact that the Citronen and Kvanefjeld projects are approaching production is a significant for the island, a place where, despite the importance attached to mining as key to economic development, exactly one mine is currently active, and has only been for a few days.

With the important proviso that all its agreements in the region are so far non-binding, and its degree of commitment will surely depend on fluctuating metal prices, China Nonferrous could help open the way for more Chinese investment to flow into Greenland (and Iceland). Such a a pioneering role would suit China Nonferrous, whose endeavours abroad, as chairman Zhang Keli 张克利 recently put it when discussing the Hafursstaðir project, “are not only economic activities, but also represent the country’s image” and shoulder a degree of “social, economic, political and foreign-relations responsibility.”

Jichang Lulu is an independent researcher with interests in China’s engagement with the North. Image credit: CC by Greenland Travel/Flickr.

China’s Interest in Arctic Shipping

Written by Frédéric Lasserre.

The commercial and strategic implications of climate change and the melting of the sea ice in the Arctic have drawn attention not only to Arctic states, but also to some other countries that have no territorial access to the region, such as China, South Korea, and Japan. Reasoning on the new climatological conditions that accelerate the melting of the sea ice, several observers pinpointed promising geostrategic opportunities for countries bordering the region, anticipating that the creation of a new trade route from north to east could lead to significant commercial profits and increase access to natural resources for economic growth purposes, because such a route would be shorter between the Atlantic and the Pacific, and challenge existing routes via the Suez or Panama Canals.

Interest in the region does not stop at circumpolar states. Other countries see a number of geostrategic opportunities and stakes involved in accessing the Arctic. China, which lacks a legal basis to articulate claims over sea zones in the region, has nonetheless been increasingly present on the diplomatic, scientific and economic scenes. Discussions over potential natural resource reserves in the area and the opening of new trade routes have led to speculation over the intentions of regional and world powers, with their economies increasingly bound by energy security issues. China is often described as being very interested in both Arctic mineral resources and the opening of Arctic shipping routes, but in this characterization there is a hint of a perceived threat, as commentators are often stressing that China’s appetite may lead Beijing into considering the Northwest Passage an international strait and resources as open up for grabs.[1] A number of Chinese scientists thus describe China as “near Arctic” [2], as if trying to justify the growing interest they think is legitimate for China in this part of the world.

For several years, media stories have announced an Arctic maritime traffic boom. With little economic analysis in support, such predictions have been little more than speculation. Some commentators have expressed the view that the Northwest Passage, toll free, will witness an expansion in traffic greater than the Northern Sea Route (NSR), part of the Northeast Passage running along the Russian coast. However, it now appears that the NSR is developing faster. A commercial agreement on long-term cooperation on Arctic shipping along the NSR between the Russian shipping company Sovcomflot and the China National Petroleum Corporation (CNPC) was signed in November 2010. In 2011 and 2012, bulk ships transported iron ore loaded in Murmansk or in Kirkenes (Norway) to Chinese ports along the NSR, and tankers and LNG carriers also delivered oil or gas between Vitino and China.

Map of the Arctic region showing the Northern Sea Route, in the context of the Northeast Passage, and Northwest Passage. Image Credit: Arctic Council (public domain)/Wikimedia Commons
Map of the Arctic region showing the Northern Sea Route, in the context of the Northeast Passage, and Northwest Passage. Image Credit: Arctic Council (public domain)/Wikimedia Commons

Efforts by the Russian authorities to develop traffic along the NSR appear to have begun to bear fruits. There were 4 transits in 2010, but then 34 in 2011, 46 in 2012, and 71 in 2013. Traffic dropped to merely 31 transits in 2014, with only 6 foreign ships and only one foreign cargo ship (a Danish ship). These figures are far from those of the Suez or Panama Canals, but they pointed to a definite growth, fueled by the export of natural resources from the Arctic to Asian markets (China, Japan, South Korea) up until 2014 where traffic dropped dramatically. The major driver of the recent rapid development of NSR traffic is the export of resources from the Norwegian and Russian Arctic regions, and not transit shipping. The NSR appears to be a niche market that provides an opportunity for a market share increase in the bulk and tanker business, but only for innovators and risk-takers such as shipping firms partnering with energy companies with close connections to the Russian State. However, Chinese shipping companies do not appear to rush to this new Arctic market: the traffic is in the hands of Russian or European shipping firms, a fact that seems to confirm a first assessment of the interest of Asian shipping companies, from China in particular.[3] Japan’s Sanko Steamship did send a ship in 2011, but the company went bankrupt in 2012; gradually recovering, it sees no market in the Arctic any more. Cosco sent a ship (the Yongsheng) in 2013 but did not repeat the experience. South Korea’s Hyundai Merchant Marine (HMM) said it would send a cargo ship in 2014, but eventually did not proceed. During a series of direct interviews conducted from September 2013 until December 2014 with 38 Chinese shipping and forwarding companies (31 answers), it appeared few expressed a real interest in Arctic shipping (Table 1). Only four, Cosco, China Shipping Development, China LNG CLSICO and Tong Li, answered they considered developing Arctic shipping. Cosco, a major shipping group, reckoned the profitability of Arctic routes was questionable. China Shipping Development and China LNG CLSICO are interested in gas projects in the Yamal peninsula, projects that are very dependent upon gas prices and feasibility of such endeavors. This is destinational traffic (transporting Arctic resources from Siberia to China) and not transit.

Table 1. Overview of responses according to company’s main sector of activity, China
Container and bulk Container Bulk Multipurpose Charterer/forwarder Total
Yes 2 2 4
No 3 3 9 7 5 27
Question: “Are you considering developing operations in the Arctic?”Survey conducted September 2013-December 2014 with 38 companies/ 31 answers.

Among the elements of explanation answering companies gave to justify their lack of interest or involvement, figured the following factors:

  • High investment cost required for the purchase of ice-strengthened ships
  • Market constraints like just-in-time and ship size that limit economies of scale
  • Arctic market too small for profitable routes that enable quick return on investment on ice-strengthened ships
  • Physical risks and insurance costs

The Chinese government multiplied declarations regarding Arctic resources rather than Arctic shipping.[4] The government and Chinese shipping firms thus seem more interested in access to Arctic natural resources, an access the Arctic shipping routes may provide, rather than transit shipping. From this point of view, Chinese shipping and chartering firms reason on a similar way as other globalized shipping firms from Europe, North America or Asia (Lasserre and Pelletier 2011).[5] This survey showed that transit did not appear attractive to the vast majority of companies because of associated costs, risks, uncertainties regarding on-time delivery. Destinational traffic lured a larger share of shipping companies operating in the bulk and tanker segment, as well as companies in the general cargo segment for the servicing of local communities in Canada, Alaska and Greenland.

Table 2. Overview of responses according to shipping company’s main sector of activity
Sector of Activity Total
Container RoRo Container and Bulk Bulk General Cargo Special Project
Yes 2 9 5 1 17
No 35 2 5 25 4 71
Maybe 3 1 6 10
Total 38 2 8 40 9 1 98
Question: “Are you considering developing operations in the Arctic?”Survey conducted Feb. 2008-March 2010 with 142 companies/98 answers.
Table 3.  Overview of responses according to shipping company’s home region
Home Region Total
Europe Asia North America
Yes 10 7 17
No 32 25 14 71
Maybe 5 3 2 10
Total 47 28 23 98
Source: Lasserre and Pelletier, “Polar Super Seaways? Maritime Transport in the Arctic,” pp. 1465-1473.

Conclusion

It remains to be seen to what extent Cosco’s experiment in 2013 is going to be assessed as fruitful and to what extent other Chinese shipping companies will develop the view that Arctic shipping can bring them interesting market opportunities. For now, it seems this potential is barely considered as most surveyed transport firms appear not to be interested in Arctic shipping. Arctic shipping is viewed as potential, because of shorter distances and fuel savings; but when it comes to developing actual service, most Chinese shipping firms presently balk at the risks and required investment. It thus seems that either there is a wide discrepancy in analysis between shipping firms (business circles) and government circles regarding the interest of Arctic shipping; or that Arctic shipping is not at the core of the interest the Chinese government nurtures towards the Arctic: natural resources and voicing its views in diplomatic institutions like the Arctic Council would then appear to be Beijing’s priorities.

Frédéric Lasserre is Professor in the Department of Geography of Laval University in Quebec. Image Credit: CC by destination arctic circle/Flickr.

Notes

[1] Scott Borgerson, “Arctic Meltdown: The Economic and Security Implications of Global Warming,” Foreign Affairs, Vol. 87, No. 2, 2008, pp. 63-77; Joseph Spears, “China and the Arctic: The Awakening Snow Dragon,” China Brief, 9(6), 2009, 1-13.

[2] Rainwater, S. (2012). Race to the North: China’s Arctic Strategy and Its Implications’. Naval War College Review, 66(2), 62-82; IISS (2014). « China’s strategic Arctic interests ». Strategic Comments, 20:2, i-ii.

[3] Lee Sung-Woo,“Potential Arctic Shipping – Change, Benefit, Risk, and Cooperation,” Proceedings of the 2012 North Pacific Arctic Conference, Honolulu, August 8-10, 2012.

[4] Alexeeva O. and F. Lasserre, “The Snow Dragon : China’s strategies in the Arctic », China Perspectives, 3, CEFC, Hongkong, 61-68. [5] Lasserre F. and JF. Pelletier, “Polar Super Seaways? Maritime Transport in the Arctic,” Journal of Transport Geography, 19(6), pp. 1465-1473.

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