The Chinese authorities intend to centralize the purchase of iron ore for steel companies with the help of the state-owned China Mineral Resources Group (CMRG) in 2023, Bloomberg reports, citing sources.
CMRG could become the largest buyer of iron ore in around the world and will make purchases for about 20 of China's largest steel companies, including China Baowu Steel Group Corp.
CMRG has already begun negotiating contract terms with leading suppliers, including Rio Tinto Group, Vale SA and BHP Group, clarified the interlocutors of Bloomberg. Consolidation of purchases for China's huge steel industry is expected to give CMRG some leverage in the negotiations, and the state-owned company intends to seek discounts from suppliers.
With the help of CMRG, China intends to change the order of global iron ore trade. The authorities of the country, which accounts for up to 75% of iron ore purchases in the world, have long been unhappy with the current system, in which the three largest mining companies control more than half of the market, Bloomberg notes.
Although CMRG was created in July 2022 year, for most it remains unclear how quickly the company will be able to start realizing its goal of consolidating purchases for the PRC steel industry, and what share of purchases it will eventually be able to provide.
In the initial stages, it is expected that the current procurement scheme will be maintained. Under it, steel companies place orders for the purchase of iron ore on a quarterly basis, and the purchases themselves take place using market prices. But CMRG will take on a certain number of contracts, the agency's sources added.
Going forward, official Beijing expects CMRG to increase its share, and eventually the country's leading steel companies will receive iron ore only through CMRG, which operates in as an agent.
If China succeeds in implementing this plan, it will be the biggest change in the iron ore market since 2010. Then, mining companies led by BHP, taking advantage of high competition among buyers, proposed to abandon the system in which the resource was sold at a price fixed annually under contracts, and switch to market pricing.
