Iron Ore

China takes another stab at Aussie iron ore exports, hopes to secure lower prices

Thu 16 Jun 22, 1:03pm (AEST)
China 6 Geopolitical Politics Tension
Source: iStock

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Key Points

  • China wants to establish a 'centrally controlled group' to bulk buy cheaper iron ore
  • China and Australia could lock horns again as there is no other major supply alternative

China is throwing another tantrum over high iron ore prices, now trying to “consolidate the country’s iron ore imports through a new centrally controlled group,” the Financial Times reported.

Government officials and policy advisers told the Financial Times that “Xi’s administration had grown frustrated by large price swings over recent years in an industry dominated by Australian producers such as Fortescue Metals (ASX: FMG) and BHP (ASX: BHP)

The new entity hopes to secure lower prices through larger bulk purchases.

Who else is going to sell you iron ore?

China loves to come up with ideas (that don't work) to lower iron prices, including a crackdown on local iron ore price speculation and urging domestic companies to safeguard price stability.

The problem is, there is no supply alternative other than Australia and Brazil - the two largest iron ore producing countries, by a wide margin.

Monthly iron ore exports 2021, Australia and Brazil
Source: Office of the Chief Economist

If China chooses to take an aggressive stance on price demands, then we'll be stuck in a chicken-and-egg conundrum.

“The [world’s biggest] iron ore suppliers will have no one else to turn to when it comes to serving the world’s largest market," a Beijing-based policy advisor told the Financial Times.

On the flip side, the world's largest iron ore consumer will have no one else to buy from.

Futures edge lower

Chinese iron ore futures on the Dalian Commodity Exchange fell -1.7% around the time the news was released this morning.

Iron ore futures on the Dalian Commodity Exchange
Source: Dalian Commodity Exchange

Iron ore at risk regardless

China's commitment to zero-covid continues to weigh on the nation's economic growth prospects. Last week, Shanghai locked down several city districts to test for covid, just days after the city exited a brutal 2 month lockdown.

China's official manufacturing Purchasing Managers' Index was 49.6 in May, an improvement over April's 47.4 reading but still in contraction territory.

On Wednesday, a string of better-than-expected data was released, including:

  • Industrial Production +0.7% (forecasts -0.7%)

  • Retail sales -6.7% (forecasts -7.1%)

  • Fixed Asset Investment +6.2% (forecasts +6%)

Even though the data beat consensus expectations, economic troubles continue to persist, even if the pain is less severe.

June will need to do a lot of heavy lifting to prove stimulus initiatives are working and consumer spending can get back on track.

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Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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