China's government has formally established a new minerals giant that aims to give Chinese steel producers more bargaining power over prices for Australia's most important export iron ore.
The move, first touted by the steel industry earlier this year, comes as speculation mounts that Beijing will soon back down on its unofficial ban on Australia's coal exports, which could reopen trade worth almost $14 billion a year at its peak.
The ban on coal was imposed in 2020 as Beijing stepped up pressure in a diplomatic dispute, but China's heavy reliance on Australia for iron ore — the key ingredient in steelmaking — meant those exports remained unaffected.
And last year as prices spiked, Chinese steel producers paid more than $130 billion — a record — to Australian miners, entrenching iron ore as Australia's most lucrative export by a wide margin.
Prices have since slumped, but customer concerns they could rise again appears to be driving the formation of what some commentators dub a new Chinese iron ore cartel.
Chinese state media outlets this week reported the registration of the China Mineral Resources Group, headed by a management team of heavyweights from the country's steel and aluminium sector.
While the new body has a wide remit, its role in purchasing iron ore from abroad on behalf of Chinese steel producers is being seen as an attempt by the industry to gain long-term leverage in price negotiations with Australian exporters.
Chinese business outlet Caixin reported the new organisation, based in President Xi Jinping's new pet project city Xiong'an, near Beijing, would engage in the import of minerals, along with exploration, mining and investment activities, excluding coal.
It will be headed by the outgoing chairman of state metals giant Chinalco, which is the biggest shareholder of Rio Tinto – one of the three big Australian companies that Chinese steel producers have long locked horns with over prices.
Another state media outlet, Global Times, described the new body as "game changing" for the steel industry in China, saying the industry's huge size was not matched by its corresponding bargaining power over global prices.
The prospect of steel mills across China consolidating their purchases into large bulk orders to demand steep discounts on contracts could chip billions off Australia's future export and tax revenue.
Australia not worried by move likened to 'herding cats'
But there is little sign of panic, at least publicly.
When asked at a business forum in Melbourne on Wednesday if the Chinese had the industry discipline to wrest pricing power from the miners, BHP chief financial officer David Lamont replied: "History would say no."
"We're not worried about that, it's something that's been talked about for a period of time," he told the forum.
One mining industry commentator compared the Chinese government's push for more central control over the country's huge steel sector as akin to "herding cats".
Another analyst, Erik Hedborg, an iron ore specialist with research firm CRU, said trying to coordinate the supply of iron ore within China would be very challenging.
"The Chinese steel industry is a massive industry with a lot of steel companies," he told the ABC.
"It's not just one company or a few companies that are buying iron ore from Australia. It is a very large number.
"These countries are so mutually dependent on each other, so I don't think the shift in power for negotiations would change that much even if they did successfully implement something like this."
Mr Hedborg believes the business relationships formed directly between Chinese steel companies and Australian exporters over many years would not be easy to override.
"It is, after all, a supply-and-demand-driven market," he said.
Last month Andrew Forrest, the head of Australia's third largest miner Fortescue, dismissed initial reports of the new Chinese iron ore group, telling the Australian Financial Review: "It's a story that's trotted out every three years."
