China’s boycott of Australian and Brazilian ore could hit both Qingdao and Rizhao ports in the short term, since these handle a large proportion of the iron ore imports that enter China. Jeffrey Landsberg of Commodore Research says China's restrictions on iron ore imports have “forced spot ore prices to increase sharply.” It seems there may be patchy take up of the boycott, as iron ore fixtures have firmed up from a low in the early part of the week.
He also adds the boycott will not have “a long-lasting impact on the market.”
The China Iron and Steel Association (CISA) and the China Chamber of Commerce and Metals (CCCMC) began to officially lobby steel mills last week to boycott Australian and Brazilian ore for two months. The organisations have also enacted several new policies to restrict iron ore imports, which could be put into legislation by the end of the month.
Some of the policies, however, appear to weaken China’s position against the miners, while other policies could impede ore imports by varying degrees. Speculative ore trading will also now be restricted, and an auditing system will be put in place to monitor iron ore imports and stockpiles.
Policies like these emerge in China on practically an annual basis, however, and it is unclear if they will significantly restrict iron ore imports.
However, Mr Landsberg said it is hard to believe China will boycott Brazilian and Australian ore for two months. The Chinese steel industry needs high quality ore from abroad and continues to expand its ports to handle large amounts of ore imports; construction of the world’s largest ore berth is already underway at Qingdao and is expected to be completed by the end of the year.
In addition, even with (now quarterly) ore contract prices considerably higher than a year ago, Chinese steel mills still stand to make profit. “As long as spot ore prices remain robust and volatile, there will continue to be a logical argument for having quarterly contract pricing,” said Mr Landsberg, adding sufficient evidence has yet emerge to support claims of spot ore prices being ruled by speculation rather than demand. Further, steel mills can avoid any risk of shifting to quarterly contracts by hedging with derivatives, he said.
He also adds the boycott will not have “a long-lasting impact on the market.”
The China Iron and Steel Association (CISA) and the China Chamber of Commerce and Metals (CCCMC) began to officially lobby steel mills last week to boycott Australian and Brazilian ore for two months. The organisations have also enacted several new policies to restrict iron ore imports, which could be put into legislation by the end of the month.
Some of the policies, however, appear to weaken China’s position against the miners, while other policies could impede ore imports by varying degrees. Speculative ore trading will also now be restricted, and an auditing system will be put in place to monitor iron ore imports and stockpiles.
Policies like these emerge in China on practically an annual basis, however, and it is unclear if they will significantly restrict iron ore imports.
However, Mr Landsberg said it is hard to believe China will boycott Brazilian and Australian ore for two months. The Chinese steel industry needs high quality ore from abroad and continues to expand its ports to handle large amounts of ore imports; construction of the world’s largest ore berth is already underway at Qingdao and is expected to be completed by the end of the year.
In addition, even with (now quarterly) ore contract prices considerably higher than a year ago, Chinese steel mills still stand to make profit. “As long as spot ore prices remain robust and volatile, there will continue to be a logical argument for having quarterly contract pricing,” said Mr Landsberg, adding sufficient evidence has yet emerge to support claims of spot ore prices being ruled by speculation rather than demand. Further, steel mills can avoid any risk of shifting to quarterly contracts by hedging with derivatives, he said.