September 29, 2022

China is pursuing a plan it believes will lower the price it pays for Australia’s most valuable export, iron ore, but skeptics liken the difficulty of Beijing’s attempt to “herd cats.”

The superpower registered a national iron ore company, the China Mineral Resources Group, designed as a centralized purchasing cartel to lower the prices it pays for the vital steelmaking ingredient.

China has long believed that its purchasing power should mean paying lower prices – a move that, if successful, could weaken Australia’s economy.

While China stopped importing Australian coal in 2020 following a conflict over the origins of Covid-19 and regional tensions, iron ore is considered too important for both countries and trade has continued.

China has pushed forward with a plan it believes will lower the price it pays for iron ore, by far Australia’s most valuable export

China has long believed that its purchasing power should lead it to pay lower prices – a move that, if successful, could weaken Australia’s economy

Australia’s dependence on iron ore exports – and on trade with China

  • Australian iron ore exports are forecast to reach A$700 billion between 2021 and 2026
  • In 2019, iron ore accounted for 41 percent of mineral exports by value, ahead of black coal (27 percent)
  • Australian miners will sell $130 billion worth of iron ore to China by 2021
  • High iron ore prices have fallen to $100 a ton, driving profits down
  • Despite regional tensions, China remains by far Australia’s largest trading partner
  • In 2019-20, Australia sold $251 billion worth of goods and services to China
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Iron ore, mainly mined in the Pilbara region of Western Australia, is Australia’s largest commodity export and a major part of the country’s economic wealth.

In 2021, for example, Australia exported $475 billion worth of goods and services worldwide, with $103 billion coming from iron ore sales.

That figure is also growing rapidly.

Last year, the Australian government predicted that iron ore exports would total $700 billion in the six years to 2025-26.

A plunge in iron ore prices, however, pushed back such predictions after historic highs.

By mid-2021, iron ore was worth more than $200 a ton, but by the end of July 2022, it was worth half.

Iron ore mining also directly employs 45,600 people in Australia.

Chinese hype casts the new $3 billion company, which will manage mines and serve as a buying platform for steel mills, as a “game-changer.”

It is located in Xiong’an, a new industrial city defended by the Chinese leader Xi Jinping.

“The new behemoth is seen as breaking new ground for China’s steel production, which is famous for its sheer size which is also disproportionate to its negotiating power in the world.” Global times said Tuesday.

Iron ore mining also directly employs 45,600 people in Australia and accounted for $103 billion of the $475 billion in goods and services the country exported in 2021

Last year, the Australian government predicted that iron ore exports would total A$700 billion in the six years to 2025-26.

The new Chinese buyer of iron ore would give Beijing “a greater voice in iron ore pricing by leveraging China’s strength as the world’s largest consumer,” the state publication said.

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But major Australian miners BHP and Fortescue Metals are unconcerned about Beijing’s plan and believe history is on their side.

David Lamont, BHP’s chief financial officer, said “history” shows that the Chinese government lacks the discipline to take control of iron ore pricing.

“Ultimately, we think the markets will determine where prices should be, based on supply and demand,” he told the paper. ABC.

Lamont told the Australian markets will ‘sort’ prices.

“We deliver in that and will obviously meet the prices that the general economy and the world are putting forward, so we’re not worried about that,” he said.

A mining industry analyst likened Beijing’s ambitious task to “herding cats” because of the number of players and the complexity of long-term relationships.

At present, Australia is the largest iron ore exporter to China and Australian miners sell to dozens of Chinese companies, although the largest buyers are state-owned companies.

“It’s a story that’s told every three years,” Fortescue boss Andrew Forrest told the AFR.

The new China Mineral Resources Group is based in Xiong’an, a new industrial city championed by leader Xi Jinping

While the new company is set to become the ultra-powerful centralized copper for the mineral, analysts believe it will start more slowly.

It is currently building a trading desk as it gathers staff with experience in the minerals sector.

Australian companies are believed to see the new company as just a new entrant to the market.