A new body, the China Mineral Resources Group Ltd, has been launched in China by the country’s Vice-Premier Han Zheng to administer the supply of mineral resources to the country, in particular iron ore. The group starts with a registered capital of 20 billion yuan (AUD $4.2b) and has been established with the aim of guaranteeing the supply of critical minerals by overseeing domestic and international trades, supply lines and development. 

The stated scope includes mining (excluding coal) ‘iron ore processing, import and export of commodities, the sales of metal ores, and warehouse and supply management services.’

As a state-owned enterprise, the new group will seek openness, cooperation and a market-orientated, rule of law approach that will eventually establish the China Mineral Resources Group Ltd as a globally competitive mineral resources company. 

There is speculation that the group was formed to counteract what China sees as a cartel of the world’s biggest iron ore suppliers, namely BHP, Vale, Fortescue Metals(FMG) and Rio Tinto, controlling prices. The current body representing China’s major steel-producing companies, the China Iron and Steel Association (CISA), has been interested in a central agency to help push back against the power of the big four producers for some time. 

Zach Bristow from Motley Fool reports that the Chief Financial Officer of BHP, David Lamont is taking a wait-and-see approach to the newly created agency. He believes the markets will determine the price, based on supply and demand and that the long-talked-about Chinese central agency won’t have a great affect on that. 

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A previous effort to control the price of iron ore was attempted in 2009, with CISA seeking to impose an 82% cut to the price of the steelmaking mineral. A boycott of the biggest three miners at the time, Rio Tinto, BHP and Vale, was unsuccessful as the steel-making companies bought in supplies. This led to the signing of long-term contracts defined on spot prices. 

Penny Bingham-Hall, non-executive director for FMG, had a positive spin, telling The Motley Fool that the industry had a new customer. Rio Tinto released a statement saying that “the company looked forward to engaging with the new China Mineral Resources Group, government and our customers to understand more”.

Only time will tell how successful the new organisation will be in achieving its aims.

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