Behind China’s steel pricing farce

Traders can only survive with government support and this is readily evident when considering that 152 traders are actively importing iron ore, yet there are only 112 valid import licences. Is it possible that the “invisible 40” are in fact major steel mill and/or government proxies?

Trader profiteering, inefficiencies, subsidies and domestic cost increases are the underlying root causes for China’s demands for a 40 per cent price cut, and undermines the credibility of the claims.

Is the real reason for China’s 40 per cent discount claim its apparent inability to compete on a level playing field in the global steel market due to inefficiency, internal profiteering, ore price inflation, and excessive government subsidies?

With extensive data available for independent analysis, China would have to be one dumb or arrogant poker player to try to play such a hand.

China is demanding a preferred position

China can improve the efficiency and competitiveness of its steel industry, simply by removing the profiteering traders and illegal traders and allow mills to negotiate directly with miners.

One would assume that the basis for a level playing field in the global steel industry would be a mutually agreed iron ore price, leaving efficiency, technology, energy and management to dictate the end price in the market place. That in turn would produce the opportunities for employment and downstream industries for each nation’s economy.

Beijing still thinks as a command economy, and imposes its will on the global free trade marketplace and refuses to embrace that system. China is demanding an iron ore price below that of its highly efficient competitors who have negotiated in good faith on the open market without the need to seek political muscle. Why should there be an exception for China when other countries have the same aspirations to increase their market share and provide employment for their workers?

Beijing’s real problem

Throughout the past decade, China’s state media has trumpeted Beijing’s growing power in international affairs. It has forced major trading partner nations to kowtow to Beijing’s demands with threats to limit their access to China’s markets. World leaders cancelled meetings with individuals China claimed to be “enemies of the state”, including such respected individuals as the Dalai Lama and others.

Beijing has gone to great lengths to impress its population of its indisputable position as an international power, to retain respect and confidence in the CCP. Beijing is successfully undermining that image with its bull-in-a-china shop strategy and the Rio Tinto arrest farce.

First, the failure of China’s mighty state-owned steel mills to secure the 40 per cent; Beijing then failed to secure the cut by taking control of negotiations with its hard line and political muscle strategies.

Contrary to international media coverage, China’s state media publishes censored reports of ongoing negotiations and tirades against the capitalist multinationals and their manipulation of global markets. What Beijing cannot accept, is that threats and political pressure failed to secure the desired result.

The drama leading up to the Rio Tinto farce is not about China. It is all about the leadership and the CCP. While Beijing ignores outside criticism, the CCP is paranoid about maintaining the respect of China's population.

That paranoia could reach new levels when a foreign non-government company can demonstrate that it can reject the direct demands of the all-powerful CCP.

Given the extensive state media coverage of China’s global power, how will China’s population comprehend that a private company, relying on China to buy its product, can refuse to kowtow to the Chinese government - the Chinese Communist Party?