Stronger guarantee for supply of mineral resources

China Mineral Resources Group was founded on July 19 to strengthen the country’s ability to take good advantage of both domestic and foreign markets and resources to guarantee the supply of important mineral resources to the country and maintain the security of its supply chains.

China is a large consumer of iron ore. The global iron ore resources are mainly controlled by Vale, BHP Billiton, Rio Tinto and FMG. The Chinese iron and steel enterprises compete with each other in purchasing iron ore and that weakens their bargaining power.

This problem is not only a matter of pricing power related to interests, but also a threat to industry and supply chain security. The founding of the company can integrate the iron ore procurement of State-owned steel enterprises.

Some people worry that the newcomer will monopolize the overseas procurement and supply of domestic iron ore. That is unwarranted. Private enterprises can still choose to continue to use their original procurement channels and methods.

As a country with the largest population and manufacturing industry in the world, China relies on imports for oil, iron ore, soybeans and other bulk commodities. In order to ensure the stability and security of supply, it is necessary to establish such a group to guarantee the stability of the country’s global resource supply and logistics system.

Japan has established strong resources and logistics dominance by relying on business consortia in the process of 20 to 30 years of trade war with the United States. These Japanese trading houses are mainly engaged in domestic and international trade. They build transnational trade platforms and trading networks, invest heavily in global oil, gas and mineral resources, and establish a corresponding independent global logistics system to form complete industry supply chains.

These Japanese business houses make equity investments in the global resource fields such as iron ore, oil, coal, grain, metal, etc, and participate in the development and management of upstream resources, and obtain the preemptive right of resources, so as to ensure the supply security of domestic enterprise resources. They also invest in shipbuilding, shipping and ports, and have their own logistics system, which makes it easier to transport resources back to Japan, further consolidating the security of the supply chain.

China should draw lessons from the Japanese model, and take advantage of the new group to reorganize its mineral resources supply chains to enhance the country’s say and bargaining power in the world market. Industrial, financial and trade departments should also actively take part in the process of China building its own global resource, financial, trade and logistics network.