China seeks to tame iron ore price rally with centralised buying platform

CHINA wants to establish a centralised platform for buying iron ore from foreign suppliers in an effort to contain the runaway price of the mineral, said Bloomberg News.

China produces over half the world’s steel, and its iron ore imports last year were worth nearly $180bn, said Bloomberg News. Its steel industry has long complained at the pricing power it says is held by a handful of giant international mining companies, it said.

The run in the iron ore price was halted last week after meetings between authorities and traders culminated in a request to commodity firms that they draw down stockpiles and cooperate with possible “illegal” activities.

The platform is currently under construction. Although China’s spot iron ore market is relatively small it nonetheless dictates the price steelmakers pay.

Until 2010, annual contract talks dictated the price at which iron ore was bought but this was replaced following requests by the largest iron ore producers who favoured a system decided by third party agencies such as S&P Global Platts.

Centralised negotiations are by no means unprecedented for China’s purchases, said Bloomberg News. A group of China’s top copper smelters collectively bargains the price for annual supplies of raw materials, for example.

But general problems with such an approach include coordination across a huge number of buyers, and the potential for cargoes to be resold at higher prices. The latter was widespread before the breakdown of annual pricing earlier this century, said the newswire.