China is pursuing a plan it believes will cut the price it pays for Australia’s most valuable export, iron ore, but sceptics liken the difficulty of Beijing’s attempt to ‘herding cats’.
The superpower registered a national iron ore company, the China Mineral Resources Group, designed as a centralised purchasing cartel to drive down the prices it pays for the essential steelmaking ingredient.
China has long believed its buying power should mean it pays lower prices – a move that if successful has the potential to weaken Australia’s economy.
While China pulled out of importing Australian coal in 2020 after a conflict over the origins of Covid-19 and regional tensions, iron ore is considered too important to both nations and trade has continued.
China has pushed ahead with a plan it believes will cut the price it pays for iron ore, by far Australia’s most valuable export
China has long believed its buying power should mean it pays lower prices – a move that if successful has the potential to weaken Australia’s economy
Australia’s reliance on iron ore exports – and on trade with China
- Australia’s iron ore exports forecast at A$700billion between 2021 and 2026
- In 2019 iron ore accounted for 41 per cent of mineral exports by value, ahead of black coal (27 per cent)
- Aussie miners sold $130billion worth of iron ore to China in 2021
- High iron ore prices have fallen back to $100 a tonne reducing profits
- Despite regional tensions, China remains by far Australia’s biggest trading partner
- In 2019-20, Australia sold $251billion worth of goods and services to China
Iron ore, which is mainly mined in Western Australia’s Pilbara region, is Australia’s biggest commodity export and a massive part of the country’s economic prosperity.
In 2021, for instance, Australia exported $475billion worth of goods and services worldwide, with $103billion coming from the sale of iron ore.
That figure is growing rapidly too.
Last year the Australian government predicted iron ore exports would total A$700billion over the six years to 2025-26.
A plunge in iron ore prices, however – after historic highs – scaled back such predictions.
In mid 2021 iron ore was worth over $200 a tonne, but was worth half of that by late July 2022.
Iron ore mining also directly employs 45,600 people in Australia.
Chinese hype casts the $3billion new company, which will manage mines and serve as a buying platform for steel mills, as a ‘game-changer’.
It is based in Xiong’an, a new industrial city championed by Chinese leader Xi Jinping.
‘The new behemoth is seen as game-changing for China’s steelmaking, which is famed for its huge size that’s also out of proportion to its bargaining power in the world,’ the Global Times said on Tuesday.
Iron ore mining also directly employs 45,600 people in Australia and accounted for $103billion of the $475billion worth of goods and services the nation exported in 2021
Last year the Australian government predicted iron ore exports would total A$700 billion over the six years to 2025-26
The new Chinese iron ore buyer would give Beijing ‘a bigger say in iron ore pricing by leveraging China’s strength as the world’s largest consumer’, the state-owned publication said.
But major Australian miners BHP and Fortescue Metals are unconcerned by Beijing’s plan, believing history is on their side.
BHP’s chief financial officer David Lamont said ‘history’ shows the Chinese government doesn’t have the discipline to take control of iron ore pricing.
‘At the end of the day, we believe markets will sort out where the prices need to be, based on supply and demand,’ he told the ABC.
Lamont told The Australian markets will ‘sort out’ prices.
‘We’re supplying into that and obviously will meet what … prices the overall economy and the world puts 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 complexity of longstanding relationships.
At present Australia is the biggest iron ore exporter to China and Australian miners sell to dozens of Chinese companies, although the biggest buyers are state-owned companies.
‘It’s a story that’s trotted out 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 intended to become the ultra-powerful centralised buyer for the mineral, analysts believe it will start more slowly.
At present it is building a trading desk as it accumulates staff experienced in the minerals sector.
Australian companies are understood to see the new company as just a new player in the market.
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