China is looking to wrestle back some control of iron ore pricing, refloating an idea to get all its iron ore imports concluded via a platform led by the China Iron and Steel Association (CISA).
According to the Financial Times, CISA will join hands with relevant ministries in Beijing and the nation’s biggest state-run mining groups such as Baowu, China Minmetals Corp and Aluminium Corporation of China to create a centralised buying plan, seen by many in dry bulk circles as the latest in a series of ripostes the Chinese government has enacted towards Australian firms in the wake of deteoriating ties between the two Asia-Pacific nations during the pandemic.
“Under the centralised purchasing plan, Chinese steel mills would be told to report their consumption plans for consolidation into a combined figure for negotiation with big overseas suppliers,” the Financial Times reported today.
A Chinese centralised steelmaking buying platform has been discussed repeatedly for more than a decade. Analysts have questioned how effective the proposed new buying platform could be in practice, suggesting that while the larger mining groups could be brought onboard, it would be harder to coral smaller companies.
China is by some distance the world’s largest iron ore buyer, taking more than 1bn tonnes a year, accounting for around 70% of global production. For the last 10 years major steel-producing nations have shifted from annual contract negotiations to an index-price mechanism. Prices for iron ore have been highly volatile during the pandemic.
While China pulled back from all manner of Australian goods over a spat over the origins of covid two years ago with bans in place for seafood, wine and coal, it has been harder to shun iron ore. However, China is backing new sources of the commodity, most notably funding the giant Simandou mine in Guinea.
ASX-listed iron ore giants in Sydney such as BHP and Rio Tinto were not hit hard by the news from Beijing today. Shares in the two companies ended the day up 0.25% and 0.67% respectively.
