China Fails to Threaten Iron Ore Market as Prices Soar

A Chinese labourer stands near a furnace as he works at an unauthorized steel factory in Inner Mongolia, China on Nov. 3, 2016. Kevin Frayer/Getty Images

Iron ore prices have flourished again despite a downward dive following Beijing’s promise to curb the mineral’s unabated market growth.

Spot prices launched to an unprecedented, all-time high of US$230 per tonne earlier in May, followed by a sharp decline by 20 percent to US$183 two weeks later. However, values once again surpassed US$200 at the beginning of June and currently sit close to US$208.

Australian Minister for Resources Keith Pitt stated in April that rising global iron ore prices came from strong production and demand from China—the world’s largest steel manufacturer—compounded by shortfalls of supply from Brazil, the second-largest exporter of the resource after Australia.

However, prices proceeded to plummet after crackdowns by the Chinese Communist Party (CCP), which accused the domestic industry sector of hoarding, monopolisation, price gouging, and other corrupt market practices.

Workers cut steel at a factory in Huaibei, Anhui Province, China, on May 3, 2018. AFP/Getty Images

In a message to commodity companies, National Development and Reform Commission (NDRC)—the CCP’s top economic planner—along with four other departments, issued a warning to organisations that a “zero tolerance” policy would be held for abusers.

This included targeting businesses that were “reaching agreements to implement monopoly, spreading false information, driving up prices, hoarding and other illegal activities.”

The communist regime’s efforts to threaten the booming iron ore market succeeded only temporarily, with prices recovering rapidly within days.

According to the Australian Financial Review, Bank of America suggested that, despite efforts to stave off the growing tide of iron ore prices, unimpeded demand for the resource would eventually force the market to return to normalcy.

“As long as demand globally remains strong (including China) and markets are tight, we think it is unlikely China’s authorities will be able to push prices down on a sustained basis,” Bank of America said in a note.

Smoke billows from a large steel plant in Inner Mongolia, China, on November 4, 2016. Kevin Frayer/Getty Images

This appears to be good news for Australia because, despite the CCP’s current aggressive economic coercion towards Australia that has impacted Australian coal, wine, barley, beef, timber, and cotton, it has so far been unable to injure Australia’s largest export industry—iron ore.

According to ABS data, in 2019-20 Australia shipped $45 (US$35) billion worth of iron ore to China—making up 22 percent of all its international exports. Bilaterally, according to statistical data, 62 percent of China’s iron ore was imported from Australia in 2019.

The Australian 2021-22 Federal Budget also relied heavily on mining, and iron, as the backbone of its economic bounce back following the deficit induced by the CCP virus pandemic.

Beijing had already attempted to threaten Australia’s economic dependence on iron ore last month, announcing plans to expand its domestic and international supply of the resource—including from mines in African countries like Guinea, Congo, and Sierra Leone.

The Simandou mine (circled in red) will be the largest mine in Africa( Source Rio Tinto).

However, in an article for the Australian Strategic Policy Institute (ASPI), Strategist David Uren said that the CCP holds less power than it believes with regards to sufficiently influencing iron ore prices.

“The reality is that the market is working well and that the Chinese authorities have much less power to influence it,” Uren said in the ASPI article.

“It must be galling to Chinese authorities that, notwithstanding their determination to punish Australia for its many perceived sins, their annual imports from Australia are running at near-record levels.”

Uren also noted that the plan to improve domestic and international supply was unlikely to impact demand from Australia significantly. In particular, he said that one of the largest mine projects in Africa, Guinea’s Simandou project, was fraught with failure.

“Astronomical iron ore prices reflect the inefficiency of China’s own iron ore mines rather than any alleged monopolistic behaviour by the major Australian mining companies.”

“The [Simandou] project, which has been stalled for more than a decade amid corruption claims and conflicts between the government and partners, would take several years to complete, and production in the initial phase is expected to be in the region of 100 million tonnes a year.”