China centralises iron ore procurement

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China is shaking up the way it procures iron ore through formation of a central organisation to increase leverage on Australian iron ore prices.

The Chinese government has established a new body, the China Mineral Resources Group, headed by the country’s steel and aluminium sector. 

It’s understood its role is to purchase iron ore for Chinese steel producers, which may change long-term price negotiations with Australian exporters.

Australia exported 80% of its iron ore to China in 2021. China consumes approximately 56% of world iron ore. 

Chinese publication The Global Times said the centralised procurement body “would give China a bigger say in iron ore pricing.”

“China Mineral Resources Group, with a registered capital of 20 billion yuan (US $2.97 billion), will engage in exploration of mineral resources, ore mining, the import and export of minerals, as well as supply chain management services, investment activities and asset management services,” The Global Times reported,

Wang Guoqing, research director at Beijing Lange Steel Information Research Center, told the publication the centralised procurement for minerals would reduce costs and “play a complimentary or partial role for foreign companies”. 

“The new firm can integrate domestic demand and enhance the nation’s voice in iron ore market procurement,” he said.

Australia iron ore exports earned $133 billion in 2021–22. 

BHP chief financial officer David Lamont believes the iron ore market would do the talking and appeared unphased by China’s ploy when speaking at a Melbourne business function. 

“We’re not worried about that, it’s something that’s been talked about for a period of time,” ABC reported he told the forum. 

“At the end of the day, we believe markets will sort out where the prices need to be, based on supply and demand,” he said.

 

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