China just made a stunning intervention in the iron ore market

Chines Premier Premier Li Keqiang (Feng Li/Getty Images)

China has been Brazil’s number one trading partner for more than five years but has remained somewhat under-represented as an investor given the strong trade links between the two countries.

That’s being remedied this week during Chinese Premier Li Keqiang’s visit to Brazil. Li has announced investments into Brazilian oil giant Petrobras and, in a huge iron ore play, China is also making a substantial investment into Vale which is the only real competitor to BHP and Rio Tinto for global iron ore supremacy.

The AFR reports this morning that:

China will loan the company up to $US4 billion ($5 billion) to help fund a $US16.5 billion expansion called S11D. The project, which should be finished next year, will produce 90 million tonnes of high-quality iron ore that will be shipped to China at a cost almost as low as that achieved by industry leader Rio Tinto.

China is also planning to invest in “up to eight of Vale’s huge iron ore carriers, known as Valemax ships”, the AFR says.

How long this investment by China has been planned is impossible to know. But the investment, and the assistance it gives Vale to increase capacity to 450 million tonnes by 2018, renders redundant any calls for Australia to have a parliamentary inquiry into the price of iron ore or try to set a floor price for Australian exports.

You can read the full story from the AFR here.

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