Sunday, June 11, 2006

High Iron Ore Prices Push China to Invest in Gabon

China will increase direct investment in overseas iron ore projects--including a huge project in Gabon--in order to expand supply options and strengthen Beijing's hand in future negotiations with the cartel that currently controls 70 percent of the world's iron ore production.

The cartel's "Big Three"--Brazil's Companhia Vale do Rio Doce (CVRD), and multinationals Rio Tinto and BHP Billiton--are hardly household names; but they are powerful enough to set world market prices for the mineral, which is the major component in steel.

They are also skilled corporate propagandists, who have managed to blame booming China for the recent iron ore price increases.

Iron ore rose in price by a record 71.5 percent last year, after talks with Japanese steel makers failed to include China. This year, Japanese and German steel companies caved in to a 19 percent price hike--and China again had to go along.

Adding insult to injury, the manager of CVRD's iron ore division, Jose Carlos Martins, told reporters that China deserves to be the world's iron ore price-setter. But Beijing is too internally focused and slow in its decision-making process to rise to the challenge, according to the corporate chief.

Internally focused? Tell that to the China National Machinery and Equipment Import and Export Corporation. The state-owend company heads a consortium that this month edged out CVRD to obtain exclusive rights to a huge, untapped iron ore reserves in Gabon, a resource-rich country in west central Africa. Under the terms of the Gabon concession, China will build expensive rail links to the iron ore reserves, which are located in a remote tropical forest about 500 kilometers (300 miles) east of Gabon's capital, Libreville.

The Chinese are expected to start work next year in order to begin production in 2010--exactly 55 years after discovery of the reserves, estimated at over a billion tons of ore in place.

The total cost of the project is approximately $590 million.

Not too shabby for an internally focused country.

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