How might China's $6b Mineral Resources Group impact the iron ore price?

After weeks of speculation, the news is finally official.

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Key points

  • Chinese authorities have established a nationalised company to buy iron ore
  • The price of iron ore remained unmoved on the news
  • It's yet to be seen if the move could be a positive or negative event for the industry

There's a new global iron ore player on the circuit. Chinese authorities have officially established a new, nationalised iron-ore company called China Mineral Resources Group.

The group was established this week with a paid-up capital of $US4.3 billion ($6.2 billion), according to Bloomberg,

The new company is set to become China's central purchaser of iron ore. Chinese steel mills would then source iron ore from the group.

The move could see China tighten its control on the global steel market – at least, that is the intention.

What does this mean for the iron ore price?

Well, apparently not much, although it's early days.

The price of iron ore didn't budge on the news and was trading sideways at US$100 per tonne at the time of writing, back at its December 2021 levels. It remains 51% down on the year.

Meanwhile, large Aussie miners don't appear too fazed by the news either. For instance, BHP Group Ltd (ASX: BHP) CFO David Lamont said the mining giant isn't too convinced the entity will influence price action.

Speaking at The Australian's Strategic Business Forum, Lamont believes "markets will sort out where prices need to be based on supply and demand".

"[O]bviously [we] will meet what overall prices the overall economy and the world puts forward, so we're not worried about that," he added.

Meanwhile, Fortescue Metals Group Limited (ASX: FMG) non-executive director Penny Bingham-Hall was more upbeat on the news.

Bingham-Hall said the industry "has got a new customer".

"I'm a great believer that markets are defined by supply and demand and China is an incredibly important market for Australia," she added.

A spokesman for Rio Tinted Limited (ASX: RIO) said the company looked forward to ­"engaging with the new China Mineral Resources Group, government and our customers to understand more".

Looking forward, it will be interesting to see where the iron ore price heads from here.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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