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Vale joins China’s iron trading platform

By Chen Yang (Global Times)

08:03, April 18, 2012

Brazilian miner Vale SA yesterday officially became a member of China's iron ore trading platform, the platform operator said yesterday, a leap forward in the country's efforts to gain more power over pricing and provide more transparency to the physical market.

Vale's move came after it signed a memorandum of understanding on March 29 with the China Beijing International Mining Exchange (CBMX), which operates the trading platform.

Other top foreign miners such as Fortescue Metals Group and Rio Tinto joined the platform last month, adding pressure to BHP Billiton, the world's third largest iron ore miner.

BHP initiated a similar iron ore trading platform last year called GlobalOre in Singapore.

"We are studying participation and are in principle supportive of any platforms that support market transparency and liquidity," BHP spokeswoman Fiona Martin said in an e-mail to the Global Times yesterday.

"BHP is likely to join the China platform before its starts operation on May 8, because products available for formal trading on the platform include some iron ore products exclusively owned by BHP," Zhang Jiabin, a senior researcher with steel industry portal umetal.com, told the Global Times yesterday.

"The global miners are showing support for the Chinese market, as domestic demand for iron ore is decreasing due to lower prices of steel products and poor performance of domestic steel mills," Zhang Lin, an analyst with Beijing Lange Steel Information Research Center, said yesterday.

Vale, BHP and Rio Tinto in 2010 abandoned a 40-year custom of setting prices annually in favor of quarterly iron ore contracts.

Currently, price indices published by foreign agencies like Platts, Metal Bulletin and the Steel Index are widely used by global iron ore giants. The CBMX platform is China's attempt to establish a pricing alternative to global iron ore indices in the physical market, analysts said.

"Transaction prices on the platform will reflect the interests of domestic steel companies more than foreign indices," said Zhang Lin.

However, Zhang Jiabin expressed doubts about how much effect the China platform will have.

"Whether the platform can play a role in strengthening Chinese buyers' pricing power will depend on the volume of transactions on it," he said.

"The platform's spot pricing method will also create pressure for domestic steel mills," he noted. "They will focus more on how to reduce raw material costs amid the fluctuations in iron ore prices, and thus pay less attention to product innovation."

The plunge in iron ore prices last year has accelerated a move to shorter pricing methods and closer to spot. China is the world's largest buyer of iron ore. Last year it imported 686 million tons of iron ore, accounting for nearly 43 percent of global iron ore output, Chinese customs data showed.

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