China’s government often works to create price stability along its production value chains. If looked at as a single company, China Inc effectively uses some of its ‘divisions’ (sectors) to move costs around to ensure that the ‘correct’ price levels are maintained for different commodities. This is evident in the coal market, where China sets upper and lower thresholds for thermal coal prices. If prices rise to the point of harming power utilities or fall to hurt miners, the government will step in.

China consumes much more manganese and chrome than it produces, in fact China currently does not have a single operating chrome mine. There has long been talk that Chinese traders act as a cartel when placing purchase orders, to use their market power against suppliers, and it makes sense that China would try to exert some level of control on prices of commodities for which it cannot produce its needed volumes locally.

African governments can work to limit China’s pricing power through various channels, but most options are likely to add some level of inefficiency to markets. Representatives in the audience were promoting the options of setting export tariffs/ quotas or convincing governments to slow the roll out of new mining licences. In our opinion, the least disruptive choice may be to setup a joint trading house which would be an interim buyer of the region’s output and stand as the primary negotiator with Chinese buyers.