China cries foul on ore fix
The surge in raw material costs have pushed steel makers in China - the world's largest importer of iron ore - deep into the red as they battle flattening demand for steel used predominantly for property and infrastructure development.
"The three major miners and some traders have delayed shipments and held back stocks to control supplies in order to send a fake market signal that there was a supply shortage," the National Development and Reform Commission said on its website, adding the pricing mechanism was "unreasonable".
While the NDRC did not name any miners, the world's top iron ore exporters are BHP, Rio Tinto, and Brazil's Vale.
Beijing has long waged a campaign against the concentration of market power held between the big three, usually through industry body the China Iron and Steel Association.
Steel mills have been forced to buy iron ore according to short-term spot prices since 2009, instead of negotiating annual contracts, which previously was the norm.
The benchmark spot iron ore price has nearly doubled from the three-year lows in September of $US86.70 a tonne to $US158.90 a tonne in February on the back of strong buying from Chinese steel mills. The price stood at $US145.80 on Wednesday.
Major miners including Rio Tinto and Fortescue have recently estimated the iron ore price will settle at between $US100 to $US120 a tonne by the end of the year, but some industry analysts are tipping sharper falls.
Speculation that the big miners have been artificially supporting prices has been running hot in the Chinese media, following revelations that BHP bought a 100,000-tonne shipment in January on the Singapore exchange, in a rare move that was seen as a strategy to stem a decline in prices.
In an emailed statement, BHP said it was "very normal for industry participants [steel mills, traders and producers] to both buy and sell cargo to balance their books". It said it had produced record volumes of iron ore between July and December, "all of which was sold".
"We sell significant volumes on a spot basis, including through widely accessible trading platforms, irrespective of the iron ore price."
Rio Tinto declined to comment.
Industry analysts say both sides try using the pricing mechanism to their benefit to improve their margins.
"I do think [the big miners] look at where the market's going and try and move shipments around to have an impact on the market," said Tim Murray, commodities analyst at Beijing-based J Capital Research.
"But at the end of the day they have a lot of iron ore they've got to sell. I don't think there's a lot of merit to it, they might play around with it a bit but I don't think its serious."
Profits at China's large steel mills slumped 98 per cent in 2012, as slower economic growth hit steel demand in the world's largest consumer, according to the China Iron and Steel Association.
Frequently Asked Questions about this Article…
China’s National Development and Reform Commission (NDRC) said some big miners and traders delayed shipments and held back stocks to create a false supply shortage, calling the pricing mechanism “unreasonable” and accusing market manipulation behind an over 80% rise in iron ore prices over six months.
The NDRC did not name firms, but the article points to the world’s top iron ore exporters — BHP Billiton, Rio Tinto and Brazil’s Vale — as the likely focus. The article also mentions Fortescue in the context of industry commentary and price forecasts.
BHP said it is normal for industry participants to both buy and sell cargo to balance books, noted it produced record iron ore volumes between July and December which were all sold, and highlighted it sells significant volumes on spot markets. Rio Tinto declined to comment, according to the article.
The benchmark spot iron ore price nearly doubled from a three‑year low of US$86.70 a tonne in September to US$158.90 a tonne in February. The price was reported at US$145.80 a tonne on the Wednesday cited in the article.
Major miners including Rio Tinto and Fortescue estimated iron ore would settle between US$100 and US$120 a tonne by year‑end, but the article notes some industry analysts are predicting sharper falls, so there is disagreement on the forward outlook.
The surge in raw material costs has pushed Chinese steel makers — the world’s largest iron ore importers — deep into the red as they face flattening demand for steel used in property and infrastructure. The China Iron and Steel Association said large steel mill profits slumped 98% in 2012.
Since 2009, Chinese steel mills have been forced to buy iron ore on short‑term spot prices instead of negotiating annual contracts. That shift to spot buying has amplified price volatility and made the spot market central to pricing discussions referenced in the article.
Investors should be aware of heightened regulatory scrutiny from China’s NDRC of miners’ supply practices, visible supply moves such as large cargo purchases on exchanges, ongoing spot‑market volatility, differing miner price forecasts (US$100–120/t) versus analyst expectations of sharper declines, and the impact of weak domestic steel demand on steel‑maker profits — all factors highlighted in the article.
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