China Launches Iron Ore Spot Trading Platform


January 17, China has launched its iron ore spot trading platform in an attempt to promote fair, reasonable and transparent iron ore pricing, the agencies behind it said.

The platform was established jointly by the China Iron & Steel Association (CISA), the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters and China Beijing International Mining Exchange.

Members of the platform include domestic steel and iron ore traders such as Baoshan Iron & Steel Co. Ltd. (600019.SH), Heibei Iron and Steel Co. Ltd. (000709.SZ) and Wuhan Iron and Steel Co. Ltd. (600005.SH).

According to the sponsors, the platform will focus solely on spot transactions, exclusive of the futures, swaps and derivatives businesses. That’s to “better reflect the price based on actual supply and demand," according to Wang Xiaoqi, deputy secretary general of the CISA.

By introducing a spot trading platform, China will reduce its exposure to monopolistic and speculative iron ore trading in the global market, Wang said.

Rising Prices

The sponsors asked BHP Billiton Ltd., Rio Tinto Co. and Vale SA, the world’s 3 largest iron ore groups, to join the platform, but all said they needed further knowledge of the platform and more time to consider before signing up.

The Big 3 have repeatedly raised iron ore prices in recent years, putting heavy pressure on the profit margins of Chinese steel and iron companies, as China still has a strong dependence on imported iron ore.

Those price increases have become more frequent since 2010, when the global miners switched from an annual benchmark pricing system to an index-based system in which contract prices are adjusted every 3 months.

China is the world’s largest iron ore importer, with 60% of its iron ore demand coming from imports in 2011, down from 63% in 2010 and 67% in 2009 but still high, the China Business News reported, without saying where it got the data.

Customs data show that China’s iron ore import volume grew 10.9% in 2011, while import value increased 40.9%.

Whether the Big 3 will join the Chinese platform remains to be seen, as BHP is backing a rival system for iron ore pricing called Global Ore. The chief executive of the Anglo-Australian miner said in October that the company was hoping to have the system ready by the end of 2011 or early 2012.

It also claims to be building a more transparent system for pricing iron ore.

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