China is about to upend the $160 billion iron ore trade with the biggest change in years as Beijing expands efforts to increase control over the natural resources needed to feed its economy.
Representatives from the major iron ore miners were informed of the changes by Chinese officials in recent meetings. The current structure for “term” supply contracts — in which steelmakers place orders on a quarterly basis and use a spot index for pricing — is expected to continue, with CMRG taking over responsibility for certain contracts to begin with, said the people.Multiple attempts to seek comment from CMRG were unsuccessful. Baoshan Iron & Steel Co.
If implemented, the move to buy through CMRG will be the biggest change to the iron ore market since 2010, when producers led by BHP took advantage of a scramble for supplies to break a 40-year system of selling iron ore at a set annual price, arguing that prices should be driven by market fundamentals.
China’s current plan is to move all term supply contracts for the leading steelmakers over time to CMRG, the people said, although the negotiations are still ongoing and the situation could change. The company will act as an agent for the steelmakers and has hired leaders and key traders from Chinese metals firms.
In 2010, under pugnacious Chief Executive Officer Marius Kloppers, BHP decided to break the system. Negotiations had become increasingly difficult and ugly, and the biggest miner was convinced it was leaving too much money on the table. at the time that its creation was encouraged and closely monitored by top leaders in Beijing. They see a consolidated platform for buying resources as a way to strengthen the country’s negotiating position in an unfriendly international environment.
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Source: Reuters - 🏆 2. / 97 Read more »