China’s state-run iron ore trader has ordered steel mills to temporarily suspend purchases of a key product from the BHP Group. This directive follows unsuccessful negotiations regarding long-term contracts. According to sources familiar with the matter, the China Mineral Resources Group (CMRG) issued this recommendation, which is expected to take effect next week.
While CMRG lacks formal authority over individual steel producers, its significant influence in the industry has made this recommendation effectively binding. The group, established by Beijing to enhance China’s pricing power in the global iron ore market, aims to shift leverage from major producers like BHP, Rio Tinto Group, and Vale SA towards China, the world’s largest iron ore buyer. The call for a halt in purchases has been supported by the China Iron & Steel Association (CISA).
“The move underscores China’s position that its vast steel industry should secure better terms,”
a source noted. CMRG and CISA representatives did not respond to requests for comment. Meanwhile, a spokesperson for BHP stated that the company could not comment on specific commercial arrangements.
As a result of this directive, some large state-owned steel mills have already begun withdrawing orders for Jimblebar cargoes, a key product from BHP’s operations in Western Australia. Other mills are considering storing shipments in bonded port zones instead of clearing them through customs. Jimblebar ores, which contain approximately 60 percent iron, are crucial for Chinese sintering blends.
The CMRG has expanded its role to stabilize the iron ore market and minimize price volatility. The organization has been advocating for direct purchases of cargoes from miners under long-term contracts at discounted rates. However, progress in these negotiations has been limited.
On the commodities market, futures for iron ore in Singapore rose by as much as 1.3 percent before settling at $106.50 per ton by 16:14 on March 15, 2024. Additionally, iron ore priced in yuan on the Dalian Exchange increased by 0.9 percent.
In response to changing market conditions, the China Iron & Steel Association convened a meeting in Beijing on March 14, 2024, to discuss the current state of the market. The meeting focused on preparing a new port-side spot index for imported iron ore, with the industry seeking to establish a local benchmark to reduce reliance on international measures such as the S&P Global Commodity Insights’ Platts index. Senior trading executives from major Chinese steel mills and trading houses participated in the discussions.
This recent development highlights the ongoing challenges in the global iron ore trade, particularly as China seeks to assert greater control over pricing and supply dynamics.
