The Coming of the Iron Ore Cartel This post will illustrate the handwriting on the wall that enables me to predict that the emergence of an iron ore cartel similar to OPEC is likely in the near term. The players in this Cartel will be Governments, not companies. The premise for the Cartel is the predominance of China as huge consumer of iron ore for which there is no substitute and which China must import.
The dynamics
- China's need to find its own sources of iron ore in Countries where China can act as a colonializing force.
- Countries with China resistant governments in place and large producing supplies of iron ore particularly, Australia Brazil and India. ( Canada is not yet a large producer)
- India is now controlling exports of iron ore altho the reasons are not clear
Australia has water issues which impede its agricultural economy and force the government to depend on taxation frorm iron ore production. it is only a matter of time before Australia figures out that lower iron ore prices from global over supply and increased taxation will kill the golden goose. Australia's answer will be to set a price that will be sufficient to maintain desired tax revenues and miner profits. Brazil and India will find it to their advantage to fall in line. China is developing alternative sources as fast as it can but these efforts are risky. Unitil the world order changes, China can not march in to an African Country to protect its investment. It may take decades for China to subdue Afganistan and develop producing mines and railroads.
This scenario is very encouraging for the future of viable iron mine projects in Labrador. it is reasonable to expect a long term floor on iron ore prices that will ensure profitability for many miners after tax revenues are paid. Labrador producers can expect some advantage in terms of being able to operate profitably in a price fixed iron ore scenario, because Labrador with a small population should be able to get buy with a lower tax per ton than Australia. I expect Australia to lead the way to development of an iron ore price setting regimen. Brazil and India differ from Australia in that their cultures and customs revolve around corrupt and degenerative governmental and economic practices. However the Chinese will not be able to control the governmnet of India or Brazil or South Africa by simple corruption. The Chinese are now able to operate cleanly in Labrador and develop sources of iron ore free of political risk. These development of iron ore sources in Labrador will help China keep the world price of iron ore down by increasing the supply so that when an iron ore cartel emerges the percentage of world supply controlled by the cartel countries will be somewhat lower. If the Chinese consider the risks of high taxation in Quebec, they will try to keep their projects on the Labrador side of the Trough.
Canada Moose