China and India Have Their Own Solution to Rising Iron Ore Prices

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Commodities, Global Trade

As we have seen during the start of the Beijing Olympic Games centralized control as exercised in China can achieve amazing things. Not that I am advocating communism, even Chinese capitalist communism for the rest of the world, but it is interesting how the Chinese authorities seek to control any aspect of the country they are not happy with. Though the Olympics is intended as the clearest expression of China’s dynamism and the success of the capitalist communism system, the government is still as active as ever behind the scenes manipulating the economy.

The soaring price of iron ore has encouraged the China Iron and Steel Association to call for steel companies to make efforts to develop domestic sources for iron ore and to restrict exports of lower value iron and steel products in favor of higher value add steel products. They are even calling for restrictions on the total amount of steel produced by the country, the first time we have heard of an industry association calling for limits to their own members production capacity.

In contrast to China, India is a net exporter of iron ore and the government there, also much inclined to centralized control, is seeking to apply price controls to the price iron ore producers can charge. There is already a 15% export tax on lump iron ore but that doesn’t stop India exporting over 100 million tons per annum. Price controls in the domestic market would drive more material to be exported ” the only response to which would be a further increase in export tax. Although the mining industry is fighting any further imposition of controls, they may be fighting a losing battle. Both steel producers and consumers are clamoring for action as prices have risen over the last year.

–Stuart Burns

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