Chinese steelmakers have succeeded in a push to include domestic iron ore price indices in some 2018 annual supply contracts with global miners, four industry sources said, as the world’s top buyer boosts its clout over pricing of major commodities.
The move marks a major step in the evolution of iron ore pricing after the industry abandoned decades-old closed door talks between miners and steelmakers in 2010 in favor of a daily price index.
While it’s not expected to have a big impact on prices, it will boost the confidence of Chinese buyers that prices reflect domestic demand and is in line with China’s desire to increase its influence over commodity pricing.
“China has always aimed to gain pricing influence in resources, including plans to launch crude oil futures,” said Zhou Tao, an analyst with Citic Futures in Shanghai.
Steelmakers and miners currently price annual contracts against benchmark indices set by agencies outside China, mainly S&P Global Platts based on its assessment of the market.
BHP Billiton has agreed with two leading Chinese steel mills to include the China-based Mysteel price index alongside the Platts index for contracts for the new fiscal year, two sources with direct knowledge of the matter said.
Fortescue Metals Group, the world’s fourth-largest iron ore miner, has also agreed to include price indices published by Mysteel and local rival Custeel in price setting, Custeel and a source at a steel mill said.
China imported a record 1.07 billion tonnes of iron ore in 2017, worth about $80 billion at current prices, accounting for more than 80 percent of the country’s total consumption.
Miners have previously adopted indices other than Platts for spot market or electronic platform sales, including the Metal Bulletin Iron Ore Index, but annual contracts make up the bulk of sales.
Mysteel, owned by internet platform operator Shanghai Ganglian, declined to comment. Custeel’s chief analyst Hu Yanping said Fortescue will use its iron ore price index as part of its payment scheme.
BHP, which used Mysteel for spot cargoes in 2015, said it was committed to the development of a range of credible iron ore indices.
“The use of Mysteel Iron Ore Index supports BHP’s wish to meet customer demand and ensure transparent and robust pricing,” it said in an emailed statement.
Fortescue did not comment directly on price formulas but said it has been working with customers in China, its largest market, and recognized the increasing maturity of Chinese indices.
