Australian iron ore producers wary of China's plans
China is exposed to global steel raw material prices as it has to import almost 80% of its annual consumption of around 1.2 billion tonnes. On Tuesday, China launched a new state-backed resource company.
China Mineral Resources Group, with a registered capital of 20 billion yuan ($3 billion), is engaged in mining investment, trading and procurement, according to Tianyancha, a Chinese online database.
Global mining giants such as Rio, BHP and Fortescue Metals Group declined to comment on the plans but said their relationship with Chinese customers has not changed.
Fortescue supplies customers with iron ore under long-term contracts, according to Executive Director Elizabeth Gaines.
"We will continue to work closely with our customers and other key stakeholders in China to… optimize our distribution channels to meet the needs of our long-standing customers and the Chinese steel industry," Gaines said.
China accounted for 90% of Fortescue's FY21 revenue.
The new company is expected to coordinate the procurement of imported iron ore, develop domestic iron ore resources, and oversee the development of mines abroad, added to the online database.
Chinese business publication Caixin also said this month that the authority is centralizing demand for iron ore.
However, history has shown that centralized iron ore purchasing plans have not worked out, said BHP, the world's third-largest iron ore producer, which sells most of its production to China.
"Eventually, we believe the markets will figure out where price should be based on supply and demand," CFO David Lamont said at a business forum in Melbourne.
More than a decade ago, BHP led the effort to end the annual iron ore price negotiations and move to market-based pricing.
Rival Anglo-Australian mining company Rio Tinto declined to comment.
However, the centralized purchasing approach seems to be more successful now than it was two decades ago, said Vivek Dhar, Commodity Analyst at Commonwealth Bank.
"This is largely due to the recent consolidation of Chinese state-owned steelmakers," he added.
"Furthermore, the nationwide success in reducing steel production in the second half of 2021 gives hope that the steel sector can operate in a unified manner."
However, the impact of centralized purchasing on leading mining companies depends on the ultimate goal of the agency, said Glyn Lowcock, head of mining research at Barrenjoey.
"Comments over the past few years clearly indicate that China is unhappy with iron ore prices above $100 a ton," Lockock said.
However, the short-term impact of centralized purchasing may be limited as there is a long tail of private steel producers in China, he added.