The big iron ore miners may have just poked the bear

Greg McKenna 

It seems the big global miners are operating on the assumption that all is fair in love, war and the iron ore mining business.
That means that as they ramp up production, with the result that the price of iron ore has crashed, that the mines that close, the workers who lose their jobs and the firms that fall by the wayside are just collateral damage as the market readjusts to the new reality favouring the big, low cost producers.
But don’t tell that to Chinese officials who last night have entered the iron ore war with measures to prop up – and potentially scuttle – the big players’ impact on local producers. Bloomberg reports that a subsidy of around 6 Yuan per tonne will be offered to local iron ore producers.
The plans according to the Shanghai Securities News, via Reuters, are “aimed at providing financial support to China’s iron ore mining sector”.
This subsidy is only small in the grand scheme of things but the intent from Chinese policy makers is clear. This could be the thin end of the subsidy and support wedge to protect local industry.
The big miners need to heed the subtle message this measure is sending, lest it become more overt. China is the world’s second largest economy and biggest socialist nation. The Government plays a key role.
The question now however, is whether having poked the Chinese bear, the pressure is redoubled on non-Chinese higher cost non-Chinese producers who appear to be without a friend in the world.