BEIJING (Reuters) -China Mineral Resources Group (CMRG), a new state-owned agency, is set to be the world’s biggest iron ore buyer as soon as next year, when it will start buying for about 20 of the largest Chinese steelmakers, Bloomberg News reported.
CMRG was set up this year to buy raw materials for the country’s giant domestic steel industry, as Beijing steps up efforts to increase control over the natural resources needed to feed its economy.
China typically buys about two-thirds of the world market’s iron ore.
The agency has started discussing supply contracts with top producers Rio Tinto Group, Vale SA and BHP Group, the report said on Thursday, citing people familiar with the situation.
In recent meetings, officials informed representatives from major iron ores miners about the changes, the report said, adding that the talks have spooked senior executives who are worried about the potential for China to increase its control over prices.
The world’s largest steelmaker, Baosteel, has allocated purchasing of more than half its 2023 iron ore imports to the new group, a person familiar with the matter told Reuters on Friday.
State-owned Baosteel could not be reached for comment.
Other steelmakers also allocated significant volumes of their iron ore purchases, said the source, declining to provide details.
“It’s a political mission,” he said, adding that it is backed by the state-owned Assets Supervision and Administration Commission. “The purpose of this centralized buying is to bring prices down.”
With CMRG taking over responsibility for certain contracts, the current structure for “term” supply contracts — in which steelmakers place orders on a quarterly basis and use a spot index for pricing — is expected to continue, Bloomberg said.
Rio Tinto and BHP declined to comment, Vale did not immediately respond to a Reuters request for comment and CMRG could not be reached.
Beijing created CMRG in July with a registered capital of 20 billion yuan ($3 billion). Guo Bin, executive vice president of Baosteel owner China Baowu Steel Group Co, is general manager of the firm, according to Tianyancha, a Chinese online database of company information.
CMRG is also aiming to develop domestic iron ore resources, and oversee development of mines overseas, it said.
The creation was seen as China’s effort to gain more clout with suppliers like Rio, BHP Group, Fortescue Metals Group, Vale and others over pricing.
At the time, BHP chief financial officer David Lamont said history had shown that centralised iron ore purchases did not work.
China’s huge steel sector still has many privately owned steel mills that are unlikely to be included in the group buying, analysts have said.
The benchmark iron ore contract on the Singapore Exchange was down 2.1% to $109.15 a tonne as of 0648 GMT.
(Reporting by Sneha Bhowmik in Bengaluru and Siyi Liu in Beijing; Additional reporting by Melanie Burton in Melbourne and Gao Zhuo in Hong Kong; editing by William Mallard and Jason Neely)
