China’s CMRG plays a prominent role in the country’s iron ore market – Bloomberg

The state-owned trader China Mineral Resources Group Co. (CMRG) has become the largest driver in China’s $130 billion iron ore import market just three years after its establishment. This is reported by Bloomberg.

CMRG’s activities have led to record low volatility in ore futures. In addition, the state-owned trader plays a role in negotiations with global mining companies, potentially shifting the balance of power between them and the Chinese steel industry.

At present, the agency notes, citing sources familiar with CMRG’s activities, the latter’s reserves have become like a national reserve, which is released when the country’s steel industry is experiencing difficulties or accumulated at low prices.

The Chinese authorities have long been trying to smooth out market fluctuations, particularly in key commodities. However, iron ore is a particularly difficult market to manage. Price spikes in the main raw material for the country’s steel industry can fuel inflation.

The Chinese government established CMRG in 2022 to change China’s relationship with iron ore suppliers by taking on the role of intermediary. According to market participants, China Mineral Resources Group is now the largest trader of this raw material after ousting other players. They also said that the company represents more than half of Chinese steelmakers in negotiations with suppliers such as Rio Tinto and BHP.

Ore prices have been quiet over the past six months. While the main reason for this is the slowdown in China’s economy and the downward trend in steel demand, observers say that CMRG has also played a role.

At the same time, none of the major mining companies are supplying China Mineral Resources Group under fixed-term contracts, and negotiations are ongoing.

One of the advantages of CMRG is its greater tolerance for losses, as it is state-owned. As its presence has grown, more well-known trading houses have backed off, according to people familiar with the matter.

The group has helped “keep prices at the level they should be based on supply and demand, rather than allowing short-term spikes,” Aurelia Waltham, an analyst at Goldman Sachs Group Inc. said at a conference in Singapore in May.

In a previous note, the bank said that China Mineral Resources Group could store up to 20 million tons of ore in ports, based on conversations with steel mills.

At the same time, David Kashot, director of iron ore research at Wood Mackenzie, notes that the unique structure of this market with its concentrated supply from low-cost producers and specific quality requirements means that CMRG’s leverage, although enhanced, will not be absolute.

Iron ore prices have been mostly stagnant since early June. There are no fundamental factors in the market that could support speculative impulses. As of June 13, September iron ore futures on the Dalian Exchange rose by only 0.4% compared to the end of May to $98.1/t. At the same time, July contracts on the Singapore Exchange fell by 1.7% to $94.6/t, the lowest since April.