Steeling China

China is the world's biggest iron ore consumer and importer with iron ore imports estimated at 325 million tons this year. Major suppliers are CVRD Brazil and Australia's BHP Billiton and Rio Tinto. Imports next year will grow by 30 million tons.

CVRD are the biggest single supplier, but the two Australian suppliers jointly outgun the South American’s. So it’s not hard to understand the concern of Chinese steel mills when news broke of a hostile takeover by BHP Billiton of competitor Rio Tinto.

The scales here are enormous; a takeover would boost BHP Billiton into the class of MicroSoft, Shell and GE. But for buyers it creates a supply behemoth big enough to hold China to ransom on pricing.

"Of course a merger will have an impact on the iron ore price negotiations - the Asian market will be monopolised by one company," said a spokeswoman for Shougang, China's second-largest steel company, which has long-term contracts with BHP Billiton and Rio Tinto.

Steel has an iconic status in China beyond even its central role in the country's industrialisation. And there are few things that irk Chinese economic officials more than being at the mercy of foreign iron ore miners. SMH

The China story is fascinating me just now, and there are so many facets to this country of 1.3 billion people. I throw this in as a continuing insight into what drives relations with China, where that country is headed.

Trade undoubtedly is the major driver of international relations now and Bush’s aggression is little more than local domestic politics fodder. I really want to get down to a few specific areas on China, like the regional differences and the Olympics, but today the world drives the post.