Michael Pascoe writes:

When is a cartel not a cartel? When it’s
a loose collection of individuals who just happen to have similar thoughts
about pricing their produce.

It’s a delicate balance, and generally only
achievable when demand is high and supply is limited, but the big three iron ore producers – BHP,
Rio and Brazil’s CVRD – have managed to maintain it at the expense of the
world’s steel mills. It’s been a pleasant turnaround from the days when the blatant
Japanese buying cartel would divide and conquer their suppliers.

Everyone knows about the demand side of the
resources boom – booming China –
but not nearly as much is said about the equally important supply side. During
the lean years, the resources majors have been steadily rationalising and new
projects were few and far between.

With the surge in demand, the buyers have
been caught by the lack of supply, but that’s inevitably changing. The gauntlet
has been most blatantly thrown down by China’s
Sinosteel, as reported by The West Australian:

Chinese industrial giant Sinosteel Corporation has offered
aspiring Australian iron ore miners access to a $3 billion war chest for new
overseas mining ventures as China
seeks to escape the domination of iron ore heavyweights BHP Billiton, Rio Tinto
and Brazil’s
CVRD…

…. Speaking at the annual AJM Iron and Steel conference in Perth,
Sinosteel Australia
managing director Xiaofei Cui said China was
eager to identify and control new supplies of key raw materials in a market
dominated by the world’s leading miners.

Sinosteel, which represents 18 major steel mills and last year traded more than
20 million tonnes of iron ore, expected to maintain a leading role in that
process, he said.

And that’s what today’s free trade
agreement talks are really all about. While the Australian Government continues to bark up the extremely difficult tree of liberalising
agricultural access, the Chinese are all about obtaining control of the raw
materials they need.

The Chinese leadership comes here still
stinging from the United
States’ xenophobic
blocking of CNOOC’s takeover bid for oil major Unocal. (And have a look at this
Fortune editorial for America’s one-way view
of globalisation.) Free trade, quite
rightly, is about enhancing everyone’s security. You don’t need to go to war to
secure vital resources if you have confidence in trade rights.

China has seen it can’t trust the US – and then the US gets huffy about China pursuing relations
with the likes of Iran and Zimbabwe.

Oh well, at least we’ll be easy. We’ll get
a deal without much agriculture in it and China
will be guaranteed access to raw materials. That’s about as useful as our US
FTA.