Steeling against iron ore dependence
After years of delays, work to develop Guinea’s Simandou—the world’s richest untapped deposits of high-grade iron ore—looks set to resume this month. Guinean authorities this week approved terms of a joint venture between the shareholders, which include Rio Tinto, Chinalco, China Baowu Steel, and the Chinese- and Singaporean-backed Winning Consortium Simandou.
For China, the project represents a major step forward in its efforts to reduce the domestic steel industry’s dependence on Brazilian and Australian iron ore imports. As one Chinese iron industry news portal put it this week, citing the Simandou news: “Chinese steel is achieving a three-dimensional breakthrough” across upstream, downstream, domestic, and foreign domains.
This means the project also threatens to undercut Australia’s iron ore export dominance—even as Simandou offers a potentially significant new supply source for Anglo-Australian Rio, the world’s largest iron ore producer. And for Guinea, the joint venture guarantees the government 15% of Simandou’s iron ore and a matching free 15% stake in railway and port infrastructure. Infrastructure had been a major sticking point in the negotiations; Guinea finally won out over Rio and Winning in its demand for a free carry of its infrastructure stake.
China’s tightening critical minerals grip
The EU this week unveiled two major pieces of legislation aimed at boosting the bloc’s competitiveness in the green industrial revolution. The Net-Zero Industry Act targets EU production of at least 40% of its green technology needs, while the Critical Raw Materials Act aims to boost extraction and processing.
But, surprise: China is set to further increase its control over the critical minerals that power climate technologies. The UK-based cobalt trader Darton Commodities projects that China’s share of cobalt production will reach 50% of global output by 2025, up from 44% now. UBS forecasts lithium extraction from Chinese-controlled mines to reach one-third of global supply by 2025, from 24% last year.
The Chinese playbook for minerals is by now familiar: First, identify critical inputs for important emerging technologies; second, occupy key upstream nodes by developing and acquiring resources at home and abroad, thus establishing influence over the rest of the supply chain; third, consolidate that control through further downstream investments (batteries, for example). (And if you want to see this playing out in real time, check out our “Little Giants” and “Single Champions” report.)
And continued Chinese focus at the upstream
Still, the long-term success of the Chinese strategy to dominate critical minerals supply chains isn’t set in stone. Take rare earths: while China dominates that industry, the country is growing concerned over its increasing reliance on imports of raw rare earth materials, and the security of those supplies.
That’s pushing Chinese rare earth players to scour the world for mining projects and offtake agreements. In particular, Chinese companies are investing in Australia’s heavy minerals sands projects, while also ramping up production at home. It’s all part of a push to secure low-cost raw materials at the upstream, which will feed Chinese manufacturers cheap inputs and strengthen their downstream dominance.
Ukraine and Russia just extended the stopgap agreement this weekend on their grain deal, but it’s unclear for what length of time. Moscow had already flipped flopped on the deal in the lead-up to November’s 120-day extension. Recently, Moscow has been demanding a shortened 60 day extension, in part as a bargaining chip for resumed ammonia exports through a pipeline across Ukraine.
The bottom line: The temporary nature of the grain deal means continued unpredictability in global grain markets. While prices of key crops are now back at pre-war levels, US wheat and corn futures jumped this week as traders weighed the continuing uncertainty. Global grain stocks are still tight, leaving the world vulnerable to disruption.
Black Sea Grain Initiative, monthly outbound shipments (through March 17)
Source: UN Black Sea Grain Initiative Joint Coordination Centre