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China Mineral Resources Group has already begun to talk supply contracts with iron ore producing leaders Rio Tinto (RIO), Vale (VALE) and BHP Group (BHP), Bloomberg reported Friday.
China's state-owned iron and steel company, Baosteel, the world's largest steel manufacturer, has already allocated purchasing of more than half of its 2023 iron ore imports to China Mineral Resources Group, according to Reuters.
The Chinese government set up China Mineral Resources Group during the summer with around $3 billion in capital. Analysts have speculated that China may have formed the agency to challenge how the top iron ore producers control global prices.
BHP Group CFO David Lamont this summer said he was not worried about China's state agency managing world prices.
"Markets will sort out where prices need to be based on supply and demand," Lamont said during the Australian's Strategic Business Forum in July.
Steel Markets And China's Economy
The Covid-19 pandemic mangled global supply chains in many industries, including steel. As much of the world slogged through the crisis, demand for steel crashed. Steel demand started to pick up toward the end of 2020.
In 2021, U.S. steel prices skyrocketed to all-time highs, moving above $1,900 per short ton in August 2021. Prices fell into a lull early this year. They then surged to around $1,500 per short ton of hot-rolled coil (HRC) in April after Russia invaded Ukraine. Prior to the pandemic, HRC prices ran near $500 per ton.
On Friday, benchmark HRC steel futures were around $678 per short ton. China's steel rebar futures were trading at about $573.60 per ton Friday.
China stocks, after enjoying a more than monthlong rally, have dropped off as Covid cases in China appear to be increasing rapidly after the country eased its restrictive policies.
The eased restrictions on travel and quarantine, combined with reduced tracking ability due to the testing halt, left investors outside of China confused about how to monitor the world's second-largest economy heading toward the Chinese Lunar New Year in January.
Analysts are not expecting a quick turnaround for China's post-"zero Covid" economy. Many analysts stress caution, warning that it may take months to see how China's economy and markets respond to eased restrictions, Reuters reported Wednesday.
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