China shakes up global iron ore market by centralizing its billion-tonne iron ore trade

China has embarked on one of the biggest shake-ups of the global iron-ore market in more than a decade. A newly minted state-owned group will be a hub for everything from huge mine investments in West Africa to buying the steelmaking material from international suppliers.

This comes amid pandemic-related disruptions and rising geopolitical tensions that have highlighted threats to supply chains and made resource security a major focus for President Xi Jinping.

A new company, China Mineral Resources Group established in July 2019 will cover mining, ore processing, and trading. Bloomberg News has reported it will manage overseas investments including the giant Simandou project in Guinea, which China sees as crucial for reducing its reliance on Australian ore, and eventually become the main or sole channel for buying ore.

China’s move is prompted by its goal to tackle what Beijing says is a power imbalance between a clutch of global mining giants on the one hand and China’s vast but fragmented steel industry on the other.

China imports 1.1 billion tonnes of iron ore annually, at a cost in 2021 of about $180 billion. There are about 500 steel mills in China, of which the top 10 companies only contribute 40% of the national output production. Each of the individual steel plants are responsible for buying their own raw materials, while iron ore supply by contrast is highly concentrated. By centralizing purchasing, China aims to gain more clout with suppliers over pricing. 

A consolidated platform for buying resources is a way to strengthen the country’s negotiating position in an unfriendly international environment. Chinese leaders have repeatedly accused the US and its allies, including Australia, of ganging up to try to suppress China’s global rise. As of last year, Australia was responsible for more than 60% of China’s imports of iron ore, despite deteriorating relations between the two countries.  Any attempt to reshape this trade will have ramifications for companies like BHP and Rio, which get more than half their revenue from iron ore. So far, though, the miners haven’t sounded any alarm publicly.

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