Government intervention to create iron ore producers ‘united front’ to China ‘too legally complex’: expert

A Chinese State-owned iron ore buying desk is picking off Australian producers “one by one” in price talks but Federal Government intervention would be a legal and political minefield, an expert says. Wood Mackenzie iron ore research director David Cachot said any push for intervention would not be pre-emptive and was unlikely to alter any market dynamics. Established in 2022, China Mineral Resources Group undertakes about 70 per cent of the Asian superpower’s tough iron ore pricing negotiations, and reports on Friday suggested Australia’s mining majors had privately called for Government help to counter its purchasing might. Mr Cachot said BHP capitulated to CMRG in April, agreeing to a hybrid pricing formula for Jimblebar fines that linked roughly half the price to a yuan-denominated Beijing port index converted into US dollars, alongside a 1.8 per cent discount on select shipments. “That made BHP the first of the major miners to adopt the Beijing index in a long-term contract,” he told The West Australian. “The push for intervention is therefore not pre-emptive — it is a response to having been picked off one by one. “CMRG’s strategy has been deliberate: negotiate bilaterally and prevent the collective front the miners are now seeking regulatory cover to form.” Mr Cachot said large-scale Australian government action faced significant practical and structural constraints, and was unlikely to materially alter underlying market dynamics. “The most direct response to CMRG’s centralised buying would be some form of coordinated selling among Australian producers,” he said. “But this runs directly into well-established competition law. “While there are indications that regulators may be open to greater flexibility given the emergence of a dominant buyer, any move toward coordinated marketing would remain legally and politically complex to execute.” A prominent mining executive unattached to the iron ore majors, who did not want to be named, said he would be surprised if the Albanese Government stepped in. BHP, Rio Tinto, Fortescue and Hancock Prospecting declined to comment. It’s understood the call for intervention was not backed by Rio Tinto. The mining executive said China had enormous influence over Rio Tinto, as an iron ore customer and with Aluminium Corp of China its biggest investor in London Stock Exchange-listed shares. The 2010 jailing of company executive Stern Hu showed it would take “a pretty courageous Rio executive to defy China”, he added. China was all the while developing other sources of iron ore and India continued to promise to overtake Australia as the world’s biggest producer in coming years, the executive said. Mr Cachot agreed that alternative supply sources added further complication. “Large-scale African projects, most notably Simandou, are gradually expanding global optionality for buyers, which over time will reduce China’s dependence on Australian supply and further erode Australian producers’ negotiating leverage,” he said. The Minerals Council of Australia and Chamber of Minerals and Energy WA declined to weigh into the debate.