In mid-to-late March, a new report from Verisk Maplecroft, a British risk assessment firm, noted that the Chinese Communist government is increasing its ability to weaponize trade, only the reality is that there is also a dilemma of being stuck in key areas.
In its latest report, Political Risk Outlook 2021, Maplecroft says China is a consumer of major commodities such as crude oil and iron ore, but it relies heavily on imports to meet related domestic demand. This can be an Achilles heel, the report says, and in a classic example, China’s largest supplier of iron ore is Australia, thus preventing the Communist government from attempting to replicate the retaliatory measures of Australian coal.
In fact, in January this year, the Chinese Ministry of Industry and Information Technology released a development plan for the iron and steel industry that within five years (by 2025), the domestic self-sufficiency rate of iron metal (mainly iron ore, or iron ore) would reach more than 45 percent, and the proportion of overseas equity iron ore in imported ore would be more than 20 percent, with the total “autonomous and controllable” supply reaching 65 percent. And this official target is clearly on target.
The current international iron ore industry is Brazil 1, Australia 2 mining giant three-way pattern. According to a recent report, Brazil in the past two years, 10 iron ore mines by natural disasters and a major reduction in capacity, as well as Australia’s Resources Minister Keith Pitt (Keith Pitt) revealed that as the country’s largest buyer of iron ore, China’s imports of iron ore in the 2019-2020 fiscal year, there are up to 62% from Australia.
These figures explain the main reason why the Australian iron ore industry has not yet been openly boycotted by the Chinese Communist Party, and also prompt the Australian government to plan ahead. On March 17, the Joint Standing Committee on Trade and Investment Growth (JSTIG) released a study pointing out that Australia’s dependence on certain countries for trade and investment may pose long-term challenges to economic growth and the need for strategic diversification. This means that Australia needs to be prepared to reduce its trade with China to avoid being held hostage to its trade and economic activities at any time.
While the Chinese Communist Party has offered its latest two-pronged policy to seek to replace Australian iron ore within five years, it may seem to the outside world that this will not be the case.
The desire to significantly increase domestic self-sufficiency comes at a time when China’s local iron ore industry is shrinking. Andrew Gadd, a senior iron ore analyst at CRU Consulting, which has offices in Beijing, cites a figure much cited in overseas reports as saying that China has increased its imports of recycled iron scrap in recent years, but that the scale of this will only increase by 10% at best over the next few years. The current Chinese iron ore supply only meets 20% of the needs of all Chinese steel mills, and by 2030, it is estimated to fall to 14%. It is clear that China will continue to rely on imported iron ore.
China’s best hope to get rid of its dependence on Australian iron ore is now to invest in the Simandou mine in Guinea, West Africa, which is said to “potentially change the global iron ore supply and demand pattern”.
But this project is very high risk, as early as 2003, Australia Rio Tinto (Rio Tinto) has been authorized by the local government to develop the Simandou mine, still no output, because of political corruption in Guinea dragged.
In January, Israeli diamond tycoon Beny Steinmetz was convicted of embezzlement charges. As AFP reported, the prosecutor said the case dates back to 2006, when Steinmetz bribed the wife of Guinea’s late President Lansana Conte to give his BSGR Energy Group (Beny Steinmetz Resources Group) the right to mine the Simandou iron ore mine. Foreign media also revealed that the largest shareholder of BSGR Group is Chinalco, a large central enterprise under the State Council of the Communist Party of China.
It is worth spending some space on the Simandou development case, as some of the Hong Kong and mainland media have disseminated one-sided information, so here is a report based on a number of foreign media reports, including but not limited to the March 2020 report “China-backed JV set to start work at Simandou” as quoted by Bloomberg.com (the largest professional news website covering the global mining industry), the following is a comprehensive summary of key points.
In 2003, Rio Tinto Australia was granted a license by the Guinean government to explore exclusively four blocks of the Simandou iron ore resource (Blocks 1 and 2 in the north and Blocks 3 and 4 in the south), and acquired the mining rights in 2006.
In 2008, Rio Tinto’s mining rights for Blocks 1 and 2 were forcibly withdrawn by the Guinean government and sold to the Israeli businessman’s BSGR Group.
In February 2009, Chalco on the one hand proposed to take a stake in Rio Tinto and jointly develop blocks 3 and 4, but in June of the same year, it announced the breakthrough and Rio Tinto Australia cancelled Chalco’s investment.
In 2014, the newly inaugurated Guinean government claimed that BSGR Group had obtained the concession through bribery and revoked the company’s mining rights in Blocks 1 and 2 again.
In November 2016, the companies had to redistribute their shareholdings after the Guinean government amended the mining law to require the government to take a 15% stake in the dry, at which time Blocks 3 and 4 were 95% held by a joint venture between Rio Tinto and Chinalco in the ratio of 53% and 47%.
In 2017, the Chinese Communist government agreed to provide a US$20 billion loan to the Guinean government over nearly 20 years in exchange for the mining rights.
In October 2018, Rio Tinto announced that the original agreement had lapsed due to the failure to reach a final agreement within the term of the agreement. At that time, Rio Tinto, Chinalco and the Guinean government (dry shares) had the following shares in the Block 3 and 4 projects respectively: 45.05%, 39.95% and 15%.
In July 2019, the Guinean government launched an international public tender for blocks 1 and 2 of Simandou. In November of the same year, the official website of the Ministry of Commerce of the Communist Party of China (CPC) announced that the SMB-Winning Consortium, led by Singapore’s Winning International Group, had won the tender for blocks 1 and 2 in northern Simandou.
It is fair to say that for the Chinese government, the BSGR Group’s mining rights for Blocks 1 and 2 did not go to outsiders. According to public information, “Win Alliance” consists of Singapore’s Wylie Group with 45% of the shares, the largest shareholder, Shandong state-owned enterprise Yantai Port with 10% of the shares, Shandong private enterprises Hongqiao Group, Guinea UMS company shares are not known. According to the official website of WELI Group, the group has a long-term business cooperation with Chinalco Group.
The Chinese approval was reportedly approved in March this year, and the northern Simandou mine is expected to be put into operation by 2025 at the earliest.
In fact, CRU analyst Andrew Gadd has pointed out that even if China could ship iron ore from all other places in the world outside of Australia to China, it would still need an additional 300 million metric tons of supply to meet demand.
Geoff Raby, former Australian ambassador to China, has also pointed out that the Chinese Communist Party’s “One Belt, One Road” involves a lot of infrastructure projects that require a lot of steel, so there is no way to get rid of the dependence on Australian iron ore in the short term.
Clive Palmer, the Australian mining magnate, told Sky News in September last year that China is totally dependent on Australian iron ore and various mineral resources; without iron ore, China would be in absolute economic collapse, and Palmer even suggested that the Australian government should impose export tariffs on Australian iron ore sold to China to counteract the Chinese Communist Party’s economic coercion of Australia.
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