Knights Templar drug gang corners Mexican iron ore trade with China

When the leaders of Mexico and China met last summer, there was much talk of the need to deepen trade between their nations. Down on Mexico's Pacific coast, a drug gang was already making it a reality.

The Knights Templar cartel, steadily diversifying into other businesses, became so successful at exporting iron ore to China that the Mexican navy in November had to move in and take over the port in Lazaro Cardenas, a city that has become one of the gang's main cash generators.

The steelmaking centre, drug smuggling hot spot and home of a rapidly growing container port in the western state of Michoacan occupies a strategic position on the Pacific coast, making it a natural gateway for burgeoning trade with China.

Lazaro Cardenas opened to container traffic just a decade ago, and with a harbour deep enough to berth the world's largest ships, it already aims to compete with Los Angeles to handle Asian goods bound for the US market.

But that future is in doubt unless the government can restore order and win its struggle with the Knights Templar, which took its name from a medieval military order that protected Christian pilgrims during the Crusades.

Mexico's biggest producer of iron ore, Michoacan state is a magnet for Chinese traders feeding demand for steel in their homeland. But the mines also created an opportunity for criminal gangs, such as the Knights Templar, looking to broaden their revenue base into more legitimate businesses.

"The mines were mercilessly exploited, and the ore was leaving. But not in rafts or launches - it was going via the port, through customs, on ships," said Michoacan's governor, Fausto Vallejo, soon after the navy occupied the port on November 4.

Already a thriving criminal enterprise adept at corrupting local officials and squeezing payments from businesses, developers and farmers, the Knights took to mining with aplomb.