China traders bristle at India ore ban

China’s steel companies and iron ore traders are chafing against the recently announced ban on import of low-quality iron ore, which affects Indian exports, saying the objectives it ostensibly aims to serve are ill met by the ban.  

Last fortnight, the state-backed China Iron and Steel Association (CISA) directed steel and ore traders to halt imports of ore with less than 60% iron content. The move was manifestly intended to enforce “discipline” on steel mills and iron ore traders following the unsavoury tangle with international miners, which resulted in the sentencing of four Rio Tinto officials on bribery charges earlier this month. 

Analysts had speculated that the move was a precursor to engineering a consolidation of China’s steel industry, and to resist demands from the world’s top three iron ore suppliers for hefty price increases and quarterly pricing contracts, as opposed to the earlier annual contracts.

CISA has in the past argued that an unregulated steel industry in China — and the practice of ore traders illegally trading in the market — had pushed up China’s iron ore imports, and had “undermined” the country’s negotiating position at talks with foreign miners to set the benchmark price. In recent years, however, many iron ore importers who have been purchasing ore at lower contract prices, had taken to reselling them in the spot market, where prices are typically higher. 

A senior official from China’s Metallurgical Mines Association (CMMA) has since claimed, somewhat incredulously, that the ban on imports of low-grade ore was linked to ongoing efforts in China to combat environmental pollution and achieve energy-efficiency.

However, ore traders and steel industry representatives, who stand to lose from the ban, which effectively pushed up spot prices of iron ore, have responded with sceptism to this suggestion.

According to Li Chuangxin, director of China Metallurgical Industrial Planning and Research Institute, low-quality ore accounted for a large proportion of China’s iron ore imports, and the import restriction would lead to a shortage and push up ore prices. 

“In the first place,” said Li, “this import ban cannot solve the problem (of environmental pollution); secondly, it will only drive up the price of high-quality ore.” 

Steel industry representatives too point out that low quality ore was more often than not used for “blending” - and helped steel mills bring down the cost of production. 

Spot prices of ore from India have already shot up by $20 in these two weeks.

According to metals analyst Hu Kai, the ban will impact the import of 100-200 million tonnes of iron ore, which, in turn, would skew the demand-supply equation in the market.