Chinese Iron Ore Buyer Reportedly Stops All BHP Trades, PM Calls for Quick Resolution
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Reports have emerged that China Mineral Resources Group (CMRG), a Chinese Communist Party (CCP)-controlled iron ore buyer, ordered local steelmakers and traders to suspend purchases of all new cargoes from the world’s largest mining company, BHP.
This caused BHP’s shares to slip 1.5 percent to $41.88 (US$27.68) at midday AEST, having also dropped in London (-2.2 percent) and New York (-0.8 percent) overnight.
According to sources cited by Bloomberg, it is the latest move in an escalating dispute over contract details, after several meetings between the parties since late last week had failed to reach an agreement.
Earlier in September, CMRG halted the buying of BHP’s Jimblebar blend fines (a specific grade of iron ore from the Jimblebar mine in Western Australia).
Market observers say the CCP has tasked the state buyer with gaining greater control over the negotiations, not just with BHP but also other miners such as Rio Tinto Group and Vale SA, with a view to controlling prices.
As part of its strategy, CMRG has stockpiles of ore at more than a dozen ports across China, releasing them when mills are struggling and buying large quantities from offshore when prices dip.
This means the refusal of shipments could result in cargoes worth millions of dollars remaining unloaded, incurring hefty shipping-related expenses and affecting operations at BHP’s mining operations in Western Australia’s Pilbara region.
For BHP to Resolve: Labor
Any reduction in demand from China will have a flow-on effect on royalties and taxes received by state and federal governments.Prime Minister Anthony Albanese has called for a quick resolution of the dispute.
“We have seen those issues in the past. I want to see Australian iron ore be able to be exported into China without hindrance,” Albanese said.
“That is important. It makes a major contribution to China’s economy, but also to Australia’s.
“These measures are always disappointing, but let’s hope that they are very much short-term. Sometimes, when people are negotiating over price, these things will occur. I want to see this resolved quickly.”
Treasurer Jim Chalmers said the reports were “concerning” but ultimately a matter for the company to handle.
He said he planned to speak with BHP Chief Executive Mike Henry about the issue, “when we can set that up.”
RBC Capital Markets analyst Kaan Peker said iron ore prices are already elevated (above $US100 per tonne) as the market is tight despite seasonally weak Chinese construction demand.
That would likely see competitor products trade at a premium, meaning CMRG would be unlikely to be successful in forcing down prices, making the ban a “neutral event” and “more of a negotiating tactic” by the CCP-owned ore buyer.
“On government instructions, steel mills could try to offset BHP volumes via Fortescue, Rio, Vale, domestic ores or stockpiles, but in aggregate it would be at higher cost and efficiency loss, and this would be at the margin, as competitors could currently only absorb a very small portion of BHP’s volumes,” Peker said.
Peker noted that an estimated 11 percent of China’s steel output would be at risk in the event of a long-term ban, making BHP’s iron ore supply “structurally irreplaceable.”
Nonetheless, the news made the markets skittish, with the benchmark S&P/ASX200 falling 23.1 points, or 0.26 percent, to 8,824.7, as the broader All Ordinaries slipped 19.8 points, or 0.22 percent, to 9,116.1.
Meanwhile, shares in Fortescue jumped more than 2 percent and Rio Tinto edged 0.1 percent higher.
