China has signalled plans to prop up its domestic iron ore miners with tax cuts in retaliation to efforts by foreign giants to drive them out of business.
The move is another blow for Australia's struggling small and medium sized iron ore miners, who are becoming collateral damage in a fight for control of the market.
CLSA analysts say the tax cuts will be insignificant at less than $A1.30 a tonne, but the fact that they were reported in Chinese state media is seen as symbolically significant.
China is seen as fighting back after a decade of being subjected to soaring prices that climbed above $US180 a tonne in 2011, to drive its infrastructure boom and urbanisation that has dragged millions out of poverty.
"They are trying to become less reliant on Australian and Brazilian iron ore," IG market strategist Evan Lucas said.
"For a long, long time they have been a price taker and I think they're clearly showing that they're sick of it."
Australia's BHP and Rio Tinto are driving down prices - currently below $US48 a tonne - by flooding the market with extra supply despite falling demand.
While on face value that is good news for Chinese buyers, there is a risk that those large players along with Brazil's Vale will be the only producers left when higher-cost miners are driven out.
China is the world's most populous nation and has steadily built up its investments in resources globally, to ensure its security into the future.
Less than a year ago, Chinese steel giant Baosteel acquired Australian iron ore and coal group Aquila for $1.4 billion and is the dominant partner in the Karara Mining project in Western Australia.
"China doesn't need to be throwing money at this beyond whatever their domestic short-term priorities are," Morningstar's head of resources research Mathew Hodge said.
"They might be trying to signal intention a little bit more than anything."
Nothing will change until supply is reduced, Mr Hodge said, adding that the tax cuts were bad news for Australian miners.
Shipments out of Port Hedland increased 2.6 per cent in March and Gina Rinehart's new mine will add 55 million annual tonnes.
Mr Lucas predicted a rash of collapses among iron ore miners - with Atlas Iron suspending trading in its shares this week.
US investors are also reportedly dumping bonds in Australian miners, including Fortescue Metals.
"What happened with Atlas Iron has been a long time coming, they won't be the last in terms of people hitting the wall," Mr Lucas said.
Mr Hodge speculated that BHP and Rio had mistakenly over-estimated demand, were stubbornly refusing to adjust that strategy and were possibly trying to drive Andrew "Twiggy" Forrest's Fortescue out of business.
"But even if you can put them under enough pressure to get them into trouble, which they probably can do, how do you ensure that you get those tonnes off the market and you get the market share back," he said.
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