6 Min Read
SHANGHAI (Reuters) - China will refuse to grant new licenses to iron ore importers unless they participate in a domestic trading platform, in a fresh move by the world's biggest iron ore consumer to wrestle pricing power away from global miners.
China, which buys around two-thirds of the world's 1-billion-tonne plus sea-borne iron ore, has been attempting to regain the upper hand in pricing the steel making raw material since grudgingly accepting an industry-wide shift to spot pricing after four decades of a yearly-set price ending in 2010.
Under new rules, traders and steel mills seeking a new license to import will now have to trade at least 551,155 tons of iron ore on the platform set up by the China Beijing International Mining Exchange (CBMX), a document on the regulations obtained by Reuters showed. Only Chinese firms are eligible for import licenses.
China's first physical iron ore trading platform competes with the globalORE platform in Singapore, but the new rules, in a country with tens of thousands of iron ore traders, could give CBMX more business and boost liquidity.
China has long suspected that iron ore pricing is manipulated by some miners and traders and wanted a platform that it deems more transparent, although miners may be wary of Beijing gaining control if more business flows to the exchange, particularly after Chinese pressure over ore price levels.
Last month, China's top economic planning agency accused the world's top three miners and some traders of manipulating the market to push up prices that soared more than 80 percent to near $160 a 1.1 ton .IO62-CNI=SI in February from three-year lows in September.
"Some traders have already been verbally informed of this new rule and they are keen to increase trade on the platform to get the import qualification," said an industry source familiar with the matter.
CBMX launched the physical trading platform, together with its own iron ore pricing index, on May 8, 2012, hoping to boost its price-setting influence in its biggest commodity import by volume.
The new requirements were drawn up by the China Iron and Steel Association and the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters, a unit that helps regulate iron ore trade on behalf of the Ministry of Commerce of China, industry sources said.
Officials at the two organizations could not immediately be reached for comment.
A CBMX official declined to comment.
Firms applying for new licenses will have to show that they have traded a minimum of 551,155 tons of iron ore with CBMX since it was launched, according to the list of requirements in the document distributed to traders.
They also stipulate that companies should have imported more than 1 million tonnes last year.
Steel mills applying for a license are also required to have an annual output of more than 1 million tonnes of crude steel and steel making facilities that meet state environmental requirements, according to the document.
Importers already holding a license would not be affected by the new regulations, officials at two state-owned Chinese traders said.
Since the iron ore market moved to daily pricing, a battle between pricing platforms and exchanges has been underway to become the benchmark for the world's second-largest commodity market after oil.
Attracting the highest volume of trade is key to winning the benchmark battle. The CBMX has moved ahead of globalORE to date in 2013 in terms of the volume of iron ore traded.
The CBMX has hosted 5.92 million tonnes of trade in 2013 as of April 12, according to data from the exchange. globalORE has seen only about 1.9 million tonnes this year, according to industry sources.
That is a reversal from last year, when the CBMX saw 7 million tonnes traded of the 93 million tonnes of iron ore it put on offer in 2012. globalORE traded a total of 9.62 million tonnes of iron ore since it was launched on May 30, 2012.
Traders said there was a risk the new requirements might not operate as designed, noting that it was possible to get around them by conducting "paper only" transactions on the exchange with no actual delivery.
"The exchange does not need undertake responsibility for participants to eventually settle the physical delivery, that means they can default after they make the deal on the platform," said a trader in Shanghai.
Beijing has long tried to impose more control on how iron ore trading is regulated, seeking big reductions in the number of licensed traders and trying to crack down on speculative reselling. But smaller players in the industry have often found ways around the regulations.
The list of companies with import licenses is not made public, but about 120 companies are eligible, according to industry sources.
Iron ore buyers who do not have a license would have to go through importers with a permit to purchase iron ore on their behalf on a commission basis.
Additional reporting by Manolo Serapio Jr.; Editing by Ed Davies and Simon Webb