China Aims For Greater Influence Over Commodity Prices

China wants a greater say in the setting of global resource prices and hopes to achieve this by creating unified industry negotiating groups, the Financial Times reported Sept. 1. Wei Jianguo, a vice-minister for commerce urged the nation to set up teams to handle oil, aluminum and copper, similar to the way it did for iron ore this year, the newspaper said.

As China has emerged as the fastest-growing market for many or the world's commodities, Beijing has vociferously argued that it should hold greater sway over global prices. The country's rapidly growing industries have been a major factor in pushing raw materials prices up to record highs, especially for commodities such as iron ore, copper and aluminum.

Smarting over a 71.5% increase in the price of iron ore in 2005, China's steelmakers banded together to take the lead in this year's annual negotiations of contract iron ore prices with the world's largest miners. Chinese negotiators, led by the its biggest steelmaker, Baosteel, insisted on a rise of no more than 10% during bitter talks that dragged on for months. Although in the end China agreed to a 19 %, Wei, writing in the Beijing-based Economic Daily, held up the model of negotiation as a viable one for other industries.

"With reference to the model set for iron ore, we should start as soon as possible a price-negotiating system for oil, aluminum and copper and other commodities, and expand the use of long-term trade contracts," Wei said. "We are a large buyer but lack international pricing power, and as a result, the cost of buying resources and energy products is getting higher and higher."

China's short-term, trading mentality, combined with its inexperience in managing long-term contracts, has resulted in many of its companies relying on the spot market for resources. This has proved an expensive strategy over the past four years, as tight supplies have seen spot prices soar higher than contract prices, the paper said.

Copyright Agence France-Presse, 2006

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