By Kunal Bose
For many years till around 2010, Japan, which then led the global steel industry in terms of production and more importantly technology (which unarguably is still the case) was setting the benchmark price of iron ore for the year following negotiations with miners. It would go like this. The more important Japanese steelmakers would be engaged a few months ahead of the start of a calendar year in intense negotiation with the mining behemoths BHP Billiton and Rio Tinto to fix a single annual price that would then become the global benchmark. Japan, which in the absence of local availability of this particular natural resource depends entirely on its imports to feed its steel mills (they were the dominant voice in the world steel industry before being upstaged by their Chinese counterparts) had an automatic claim to stand for all producing nations in negotiating the benchmark price.
The mating season between Japanese steelmakers and the mining groups, as it was called, would keep all stakeholders in suspense as negotiations would invariably be a choppy affair. As the Chinese steel industry grew in stature both in terms of capacity and size of imports of iron ore dwarfing Japan, it did everything possible to dethrone the latter from being the arbiter of iron ore prices. The cut-off year was 2010 when an assertive China succeeded in replacing the annual benchmark price by way of a more dynamic market driven system embracing spot prices and indices such as Platts Iron Ore Index. Logically, going by the volume of annual Chinese imports, the prices steel mills of that country pay for spot transactions of ore originating in Australia should be the deciding factor for global price of the steelmaking ingredient.
What’s the Chinese profile like as far as this particular commodity goes? Last year China imported a record volume of 1.24 billion tonnes, up 4.9 per cent on 1.18 billion tonnes on 2023. Record iron ore imports for two consecutive years were despite the fall in crude steel production, a reflection of stress in steel demand from the crisis bound building and construction sectors. China has nearly a three-quarters share of global seaborne iron ore imports. Incidentally, Australia and Brazil are sources of approximately 90 per cent of Chinese ore imports. China, however, is making efforts to build new sources of imports, particularly Africa.
Whatever that is, the current year too will see China again importing over a billion tonnes of ore. This will be confirmed by it importing 801.62 million tonnes in the first eight months of 2025. One distinguishing feature of Chinese iron ore trade is that the country will at all times maintain large port side stocks of the raw material ranging from a low of 132 million tonnes to a high of 150 million tonnes. This apart, steel mills too will keep more than normal inventories of ore to tide over any temporary disruptions in supplies. (Even while China has substantial resources of iron ore, the country depends very largely on imports.
This is because, locally available of ore is of inferior quality and it is used only in blends with foreign origin ore.) Australia is the single largest supplier of ore to China, but there will be times of supply dislocations due to storms and floods in that country. Like it almost became an annual ritual when Japan was playing the role of sole iron ore price negotiator on behalf of the world industry there would be stalemate threatening breakdown in talks with representatives of BHP and Rio Tinto, China from time to time runs into problems with ore suppliers over prices.
China has been smarting under a sense of miff over many years that in spite of its being a customer of seaborne ore of this big size, it continues to have little say over iron ore pricing. The country thought it would manage to get a fairer deal once China Minerals Resources Group (CMRG) was formed in July 2022 with the mandate that henceforward it would make purchases of ore on behalf of all Chinese steel mills. But has centralisation of purchases improved the country’s negotiating power vis a vis the four mining giants, namely, the two Anglo-Australian groups BHP and Rio Tinto, Vale of Brazil and Fortescue of Australia? The reality, however disconcerting it may be, is the four mining groups, specially the first two continue to wield much greater influence on ore price fixing than CMRG.
Iron ore is one of the major elements in raw materials cost of steelmaking through BF-BOF route, the others being metallurgical coal and alloying elements. China has more than half the share of global steel production, which translates into the country using more ore than the rest of the world industry. If this does not entitle China to have at least as big a say as the miners, then it has every right to protest, which is now happening. The latest scrap between CMRG and BHP over ore prices, which threatens to drag on for months into the early days of next year has expectedly frightened Canberra since this steel specific raw material is an important source of revenue for Australia.
Whatever tensions the CMRG move has caused, Bloomberg says: “So far, the world’s largest miner has seen minimal disruption in its shipments to China, largely because the company has already sold most of its allocation of iron ore for November and December, according to people familiar with the matter.” The Bloomberg report further says the actual impact of CMRG edict will surface only when BHP starts selling the mineral for January delivery next month.
Trade officials say this leaves the two parties with enough time to find a solution to the ticklish issue that surfaces again and again. It could be a case of which party blinks first. Now to go by a more recent Reuters report, the crisis over ore pricing has started showing signs of loosening. One example, the Shanghai branch of CMRG offered eight cargoes of BHP iron ore totalling 1.14 million tonnes to local steelmakers. However, restrictions remain on BHP’s Jimblebar fines. The recent CMRG offers did not include any parcel of Jimblebar fines. (IPA Service)
