January 16, 2012 / 6:08 AM / 6 years ago

China launches its first physical iron ore trading platform

BEIJING (Reuters) - China launched its first physical iron ore trading platform on Monday in the latest move by the world’s biggest iron ore consumer to strengthen its pricing power over a raw material long dominated by giant foreign suppliers.

The China Beijing International Mining Exchange (CBMX) launched the online platform together with the China Iron & Steel Association (CISA) and the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters.

CBMX also launched a new pricing index that it hopes will better reflect actual supply and demand and eliminate the effects of speculation and manipulation.

China has long believed that its position as the world’s biggest iron ore consumer entitles it to a bigger say on prices, and the new platform is its latest move to wrest control from the big three global miners, Vale VALE5.SA, BHP Billiton (BHP.AX)(BLT.L) and Rio Tinto (RIO.AX)(RIO.L), which between them control three quarters of global seaborne ore supplies.

“Monopoly practices and price manipulations have a massive impact on current iron ore prices and have also inflicted fatal harm on Chinese steel enterprises,” Wang Xiaoqi, deputy chairman of CISA, said at the launch ceremony.

The platform will also attempt to provide a domestic rival to the GlobalOre trading exchange backed by mining giant BHP Billiton and based in Singapore. Wang said he hoped Chinese steel mills would choose the new platform.

Unlike rivals, trade in iron ore derivatives such as swaps and futures will not be permitted in order to “better reflect the price based on actual supply and demand,” Wang said.

The exchange earlier said banks and financial organizations would not be allowed to participate in a bid to stem speculation.

China’s major steel mills — Baosteel, Hebei Steel, Wuhan Steel, Shougang and Angang — as well as large iron ore traders including China Minmetals and Sinosteel have already agreed to become sponsor members of the platform.

However, none of the major foreign iron ore suppliers have yet become members, CISA’s Wang told reporters.

“We welcome them to take part — this is a global, open platform,” he said. “This platform is currently only at the launch stage, and we already have domestic and foreign steel firms expressing interest.”

CISA has long sought to resist the growing use of index pricing and what it calls the “financialisation” of the iron ore sector, favoring a return to more long-term contract pricing.

In May 2009, a number of large private traders set up China’s first non-official iron ore trading platform in the port city of Rizhao and also planned to publish the country’s first iron ore index.

But CISA soon shut the centre down, saying it would introduce speculation and destabilize the “benchmark” mechanism then used to set annual iron ore contract prices through negotiations between major buyers and suppliers.

Vale, BHP Billiton and Rio Tinto angered China by ditching the benchmark in 2010, switching instead to an index-based system in which contract prices are adjusted every three months.

While CISA finally ended its resistance to the new quarterly system last year, it remains suspicious, saying foreign indexes do not reflect the true state of the market.

CISA set up its own homegrown index last year, but it has struggled to establish itself in the face of more established gauges compiled by Platts, Metal Bulletin and The Steel Index.

Reporting by David Stanway; Writing by Ruby Lian; Editing by Ken Wills and Jonathan Hopfner

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