Beijing Creates New State-Owned Iron Ore Giant to Weaken Australian Miners

Laborers work at a steel plant of Shandong Iron & Steel Group in Jinan, Shandong province, China, on July 7, 2017. Stringer/Reuters

In a bid to gain control over iron ore prices, Beijing has created a new state-owned mineral giant that will be responsible for exploration and mass bulk buying of the commodity.

The move will be aimed at giving China greater bargaining power over major iron ore producers like Australia’s BHP and Rio Tinto, who will be forced to negotiate with the new entity to access the vast Chinese market.

On July 19, the China Mineral Resources Group—with a registered capital of 20 billion Yuan (US$2.96 billion)—was created in Beijing and will be headed by Yao Lin, former chair of Chinalco, and Guo Bin, the vice president of China’s largest steel group Baowu.

In turn, the new company will be accountable to the State-owned Assets Supervision and Administration Commission, an arm of the Chinese Communist Party that controls the regime’s state-owned enterprises.

According to Chinese finance publication Caixin, several of the country’s largest steelmakers have already agreed to purchase iron ore through the new company, including Anshan Iron and Steel, Shougang Group, and China Baowu.

China is currently the world’s largest market for iron ore—around 70 percent of global trade—and imports one billion tonnes of the mineral a year.

Difficulty Cutting Off Australian Supply

Most of China’s iron ore comes from Australia, with resource companies shipping around 700 million tonnes in 2021 (60 percent of which came from Rio Tinto, BHP, and Fortescue Metals). This was despite an ongoing economic coercion campaign instigated by Beijing in response to calls for an investigation into the origins of COVID-19 by the former Morrison government.

However, like many Australian-produced exports, Beijing has found it difficult to wean China off iron ore because developing its own supply has been difficult.

China’s domestic reserves are of lower quality than Australia and Brazil and require significantly higher costs to mine, with three-quarters of the industry spending around US$100 per tonne to extract iron ore—compared to the US$16 per tonne it costs Australia’s Rio Tinto and BHP.

Further, prices for the mineral actually increased last year hitting peaks of US$237 a tonne in May, which incidentally saw Chinese steel producers pay over $150 billion (US$103 billion) into the coffers of mining companies and the state and federal governments via royalties.

These circumstances have frustrated Beijing, with Luo Tiejun, vice president of the China Iron and Steel Association, blaming the concentrated ownership of Australia’s iron ore mines for the price increases while at the same time calling for authorities to play a “bigger role in the event of market failure,” according to a speech to an industry conference in 2021.

In reality, iron ore prices are determined and set by global markets.

In response to the forming of the new Chinese Mineral Resources Group, Penny Bingham-Hall, non-executive director of Fortescue Metals, played down its potential influence.

“I’m a great believer that markets are defined by supply and demand, and China is an incredibly important market for Australia. It’s been touted for a while, and it has been tried before. So I guess we’re waiting to see how it evolves,” she told The Australian’s Strategic Business Forum.

The new Chinese group will also be hoping to leverage its scale to open up new supplies of iron ore from Africa, notably the Simandou iron ore project in Guinea, which is believed to hold around two billion tons of high-grade (more than 60 percent iron content) iron ore.

However, getting the project off the ground has been difficult given the volatile political situation in the country.