The big news in the iron-ore business this month may be the ouster of Roger Agnelli as chief executive of Brazilian giant Vale—just ahead of the BRIC summit that brings top Brazilian officials to China—but Chinese analysts are all over another item: the deal by U.S. miner Cliffs Natural Resources Inc. to acquire Canada’s Consolidated Thompson Iron Mines Ltd. The ink was barely dry before they were hailing it as a potential trump card  in Beijing’s ceaseless quest to break the global oligopoly in iron ore.

After all, or so the experts say, Wuhan Iron & Steel Group, China’s third-largest steelmaker, is Consolidated Thompson’s largest shareholder, with 19% of outstanding shares. To the China experts, for Wuhan to have a piece of this enlarged Cliffs delivers “a blow to the position dominated by the world’s top three iron-ore giants, BHP Billiton, Rio Tinto and Vale,” making the country “less dependent on the three giants.” (The Big Three miners, which control 75% of the global seaborne iron ore trade, are a “blatant tyranny,” the Xinhua story declares.)

But as measured by production, the enlarged Cliffs resembles not so much the three supremos as it does Fortescue Metals Group, the Australian miner once cast by the Chinese in the same savior role in which some now see Cliffs.

A bit of history: China, the world’s largest buyer of iron, fell out with the Big Three over pricing in a series of public rows that started in late 2008 and reached its apogee when China arrested four Rio Tinto employees in July 2009, alleging bribery in the price negotiations. That was back in the days when Chinese steelmakers engaged in secretive yearly talks with the Big Three to hammer out a single iron-ore import price that then became the global benchmark.

As the benchmark system, which had lasted for about three decades, came apart in 2009 amid accusations and recriminations, Chinese steelmakers quietly struck deals with the Big Three to import iron ore based on “provisional prices.” Desperate to snatch a victory from the dragged-out battle, the Chinese steel government lobby turned to Fortescue in August 2009 and won a deal for marginally cheaper ore (about 3 cents less per dry metric ton than the Rio Tinto-BHP price).

The Big Three reacted with indifference. “We do not see this pricing agreement as relevant to our pricing for fiscal 2009,” a Rio Tinto spokesman said at the time. They had a point: Fortescue put out 40 million tons of ore a year (less than what China imports in a single month), and even its plans to raise that to 155 million tons by 2014 didn’t make the deal a game-changer. Now the Chinese are looking to the enlarged Cliffs, which can produce 48 million tons annually and hopes to double that by 2013.

But the world has changed. The Big Three last year discarded the benchmark system in favor of rolling spot-based prices — some set quarterly, some monthly — struck in separate agreements with individual steelmakers rather than a single set of talks with government-sponsored lobbies. The new system now rules the iron-ore world. The room for Beijing to exert political influence in iron ore pricing—never very wide—has narrowed even more.

Even Wuhan’s presence as a substantial shareholder in a North American mining business—a company spokesman said Wednesday it supports the Cliffs-Thompson deal—may yield less clout than hoped for. It isn’t the first Chinese company to have a big piece of a global iron-ore mining company: Hunan Valin Iron & Steel Group is Fortescue’s second-largest shareholder, with a 17.3% stake. And of course, the Aluminum Corp. of China, or Chinalco, has been Rio Tinto’s largest shareholder since 2007, with a 9% stake.

While the Chinese strategy of aggressively diversifying iron ore supply sources—sending emissaries across Latin America, Southeast Asia, Australia and Africa to secure a series of stakes—plays well for its longer-term resource security, it’s still not quite about to throw the Big Three’s pricing power down Cliffs.

—Chuin-Wei Yap

The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978.

In 2009, China announced that by 2020 it would reduce carbon intensity 40% from 2005 levels.

China has emphasized raising personal income and consumption and introducing new management systems to help increase productivity.

Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated.

The two sectors have differed in many respects.

A report by UBS in 2009 concluded that China has experienced total factor productivity growth of 4 per cent per year since 1990, one of the fastest improvements in world economic history.

The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy.

The ministry made the announcements during a press conference held in Xiamen on the upcoming United Nations Conference on Trade and Development (UNCTAD) World Investment Forum and the 14th China International Fair for Investment and Trade.

From January to June, the ODI in financial sectors was up by 44 percent to $17.9 billion, and in July alone, the ODI recorded $8.91 billion, the highest this year.

China is aiming to be the world’s largest new energy vehicle market by 2020 with 5 million cars.

In large part as a result of economic liberalization policies, the GDP quadrupled between 1978 and 1998, and foreign investment soared during the 1990s.

Despite initial gains in farmers’ incomes in the early 1980s, taxes and fees have increasingly made farming an unprofitable occupation, and because the state owns all land farmers have at times been easily evicted when croplands are sought by developers.

In terms of cash crops, China ranks first in cotton and tobacco and is an important producer of oilseeds, silk, tea, ramie, jute, hemp, sugarcane, and sugar beets.

China ranks first in world production of red meat (including beef, veal, mutton, lamb, and pork).

Coal is the most abundant mineral (China ranks first in coal production); high-quality, easily mined coal is found throughout the country, but especially in the north and northeast.

There are large deposits of uranium in the northwest, especially in Xinjiang; there are also mines in Jiangxi and Guangdong provs.

Coal is the single most important energy source in China; coal-fired thermal electric generators provide over 70% of the country’s electric power.

Before 1945, heavy industry was concentrated in the northeast (Manchuria), but important centers were subsequently established in other parts of the country, notably in Shanghai and Wuhan.

Continued here:
China Gets a Toehold, and Bitter Memories, in U.S. Iron-Ore Deal