At the “2013 China Iron Ore Conference†held in late February, Li Xinxing, Executive Vice Chairman of the China Iron and Steel Association, highlighted that the three major mining giants have been manipulating iron ore prices by strictly controlling shipments and frequently conducting spot auctions. Currently, about two-thirds of the world’s 1 billion tons of seaborne iron ore is sold to China, giving the country a significant influence on global pricing.
There has been speculation about the potential release of import license qualifications for iron ore. The China Steel Association is expected to announce the list of qualified companies in the first half of the year. However, an insider from the Development Research Department of the North Mining Institute stated that due to the lack of official documents, they are not yet able to comment on whether these changes will be implemented.
During a press conference held by the Ministry of Industry and Information Technology on April 23, spokesperson Xiao Chunquan confirmed that he had not heard of any news regarding the requirement for iron ore import companies to go through the North Mine. According to Wan Shan, an analyst at the Treasure Island commodity trading platform, the idea may exist within the industry, but it is unlikely to become an official policy.
In 2005, China abolished the import qualification requirements for over 400 companies, aiming to regulate the market and prevent traders from inflating prices through “reverse mining.†However, after eight years, the impact has been minimal. This news has sparked excitement in the market, suggesting that import licenses might be relaxed.
Jiang Jiang, a trade representative from Hebei Tangshan, expressed hope that import qualifications would be liberalized. In 2011, his company was denied access to import/export licenses, despite having already negotiated with an Indonesian mine. Without the necessary permits, they had to rely on a Tianjin-based agent, resulting in high clearance costs.
Jiang believes that loosening import restrictions could encourage more steel companies and traders to source iron ore from multiple channels, which would help stabilize domestic prices. As of 2011, the Ministry of Commerce listed 105 qualified companies, including 65 steel firms and 40 traders. These companies are reviewed every two years, with the next review expected in 2013.
Despite this, there is no official confirmation on whether the import qualifications will be tightened or relaxed. Zhang Changfu, deputy chairman of the China Iron and Steel Association, mentioned that efforts are underway to clean up companies with import licenses, with the final list expected to be announced soon.
Wan Shan pointed out that foreign mines are more accustomed to free markets and that the government should reduce its intervention. He argued that as long as traders operate legally, there is no reason to restrict them from accessing the North Mine.
The trading volume of the North Mining Exchange in 2012 was less than 1% of China’s total iron ore imports. Despite its one-year anniversary, the platform has failed to meet initial expectations. By the end of 2012, the total number of applications reached 1,100, with 92.96 million tons applied for, and only 7 million tons traded. China imported 740 million tons in 2012, meaning the platform’s share remains negligible.
At the “2013 China Steel Planning Forum,†Luo Tiejun, deputy director of the Ministry of Industry and Information Technology, noted that the North Mine’s trading volume of 7 million tons has not influenced pricing significantly. He suggested that if the platform could reach 20% of the import volume, it might gain more pricing power.
A vice president of the Beijing Mining Rights Exchange explained that while many large companies have joined the platform, transactions remain limited, mainly driven by smaller enterprises. He attributed this to the sluggish downstream market and the continued preference for traditional trading methods.
Luo Tiejun also pointed out that the low transaction volume on the North Mine is partly due to the long-term stability of iron ore prices, with little spot trading occurring. Without sufficient volume, the exchange struggles to set meaningful price benchmarks.
Beyond spot trading, the battle for pricing power in the iron ore market is intensifying. On April 12, 2013, the Singapore Stock Exchange launched its first iron ore futures contract based on the 62% grade price in Tianjin. If China does not act quickly, it risks continuing to accept international prices in the derivatives market.
In October 2012, the National Development and Reform Commission commissioned a study on the impact of iron ore derivatives on China’s steel industry. A proposal by the China Securities Regulatory Commission was accepted, and the Dalian Commodity Exchange completed the draft for an iron ore futures contract. Approval from the CSRC was granted, paving the way for its listing.
The introduction of iron ore futures on the DCE is seen as a critical step toward building a complete industrial chain with raw material products. This would allow steel companies to use domestic financial tools to improve procurement efficiency.
As of April 21, China’s port inventory stood at 68.09 million tons, with current iron ore prices at $136.5 per ton. Prices have fluctuated widely, reaching a high of $160 per ton in February 2013 and dropping to $88.5 per ton in September 2012—a rise of over 80%.
Wan Shan believes that iron ore prices will continue to fluctuate, making it difficult for domestic steel mills to control costs under the dominance of the big players. He advocates for the swift introduction of iron ore futures to hedge against raw material price volatility.
According to Liu Yuan, a senior manager at Shanghai Iron and Steel Electronic Commerce Co., Ltd., overseas exchanges are gradually introducing iron ore contracts. Chinese steel mills and traders currently lack effective hedging tools, risking a loss of pricing power in the future.
However, concerns remain about the introduction of iron ore futures. Luo Tiejun recently emphasized that the policy should be “researchable, preplanned, and carefully launched.†He warned that the concentration of iron ore suppliers in China could lead to price manipulation in the futures market. Additionally, the steel industry's strategies are still developing, and if iron ore futures become a platform for speculation, it could increase the burden on steel companies.
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