It’s no secret that China believes in the concentration of power. However, that philosophy extends far beyond governance. It also dramatically affects the way the country does business. For instance, earlier this week, we saw the inauguration of the state-owned and centrally administered China Mineral Resources Group. Many mining companies perceive the move as China attempting to exert more influence of iron ore prices. In fact, some have called it “one of the biggest shake-ups of the global iron ore market in more than a decade.” Indeed, the group will serve as a center point for virtually all of China’s mineral interests. This includes everything from investments in African mines to the buying of steel-making material from international suppliers. Those most affected, including mining giants Rio Tinto Group and BHP Billiton, have thus far refrained from commenting on the new development. In fact, experts believe that the CMRG’s emergence will have little to no effect on ore or steel prices globally – at least in the short term.
What Exactly Will The New Group Do?
The new group’s business activities will cover activities like mining, iron ore processing, and the sale of metal ores. But that’s not all. Beijing plans for the CMRG to adopt market-oriented and law-based operations so that it can build itself into a world-class mineral resources company with global competitiveness and influence. Thus far, the organization has received capital to the tune of about US $4.3 billion (¥20 billion).
Beijing has always wanted more clout over pricing. Therefore, it’s likely that the primary aim of this new company is to even out the imbalance between global mining giants and China’s own steel industry. After all, let’s not forget that China imports approximately 1 billion tons of iron ore annually. In fact, out of its roughly 500 steel mills, only 10 contribute 40% of the national output production. Moreover, the responsibility of buying raw materials falls on each individual steel plant.
According to this report, the China Mineral Resources Group could give Chinese buyers more bargaining power. The idea is that this could give them more leverage to demand lower prices. Leading Chinese companies China Baowu Steel Group, Ansteel, China Minmetals and Shougang Group will also be under the purview of this new Group. That said, the move to centralize its purchasing power may not immediately impact prices.
The Move Represents a Retaliation Against the Iron Ore Market
Ultimately, it’s important to remember that prior to 2010, iron ore prices in China were fixed. This was an annual process, and it was determined by the country’s biggest miners and steelmakers. However, once the Chinese iron ore market started to expand, floating prices came into play. This quickly led to complaints from Chinese steel companies about the pricing mechanisms.
Then came the COVID pandemic. This significantly disrupted the supply chain, adding to China’s ongoing financial woes. In fact, the country has constantly accused the US and Australia of unfair pricing, claiming they were coordinating to hinder China’s global rise. Therefore, it’s fair to say that this new group is China’s “retaliation.” Of course, whether or not such a centralized attempt will work remains to be seen.
By AG Metal Miner
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