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China promises iron ore "market order" in meeting with steel mills -source

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07/16/2019 | 07:36am EDT
The iron ore terminal is seen at Dalian Port

BEIJING (Reuters) - China's government promised it will keep "order" on the iron ore market at a meeting last week with the country's steel producers who complained about record-high prices, according to a source who attended the meeting.

More than a dozen representatives from government departments, leading steel mills, including China Baowu Group, Ansteel Group and Jiangsu Shagang Group [JSSGG.UL], domestic trading houses, industrial associations, consultancies and Dalian Commodity Exchange gathered at the Ministry of Industry and Information Technology (MIIT) last Thursday, the source said.

"Government officials said they support industrial participants' assertion of their own rights and will resolutely sustain market order," said the attendee, who is a senior official at the China Iron and Steel Association (CISA). He declined to be named as he is not authorised to talk to the media.

China's market regulators promised that they will tighten supervision of money flows in the benchmark iron ore futures market run by the Dalian Commodity Exchange, according to the attendee.

They will also examine whether companies are using affiliated entities to place trades on the DCE in violation of the market rules. However, the current DCE trading rules will not be changed, he said.

Iron ore futures on the DCE have doubled since the beginning of 2019. On Tuesday, the most actively traded contract, for September delivery, rose to a record 924.5 yuan ($134.47) a tonne.

The spike follows production cutbacks at major miners in Brazil and Australia after a fatal tailings dam accident and a cyclone in the state of Western Australia.

Last Thursday's meeting followed the creation of a group, led by eight steel firms representing 30% of China's steel output, that asked the government to investigate "non-market factors" causing the iron ore price rally.

Officials from the National Development and Reform Commission (NDRC), the MIIT and State Administration of Market Regulation also attended the meeting on Thursday.

The mills, the CISA, the DCE and the government agencies did not respond to enquiries by Reuters seeking official comment.

In their plea to the government, the eight mills also called for investigations into the methodologies used to assess physical cargoes of imported iron ore by S&P Global Platts, which is considered the spot trade benchmark and a reference for long-term contracts.

However, no formal approach has been taken by the Chinese government in response to the enquiry, according to the CISA source and Platts.

"We are always open to suggestions to change to improve on our methodology," said Julien Hall, Asia Metals Pricing Director at Platts.

A Platts spokesman also said it has approached CISA to discuss the price assessments.

The benchmark Platts iron ore index with 62% iron content was at $118.55 a tonne on Friday from $72.35 at the beginning of this year.

($1 = 6.8750 Chinese yuan renminbi)

(Reporting by Muyu Xu and Shivani Singh; editing by Christian Schmollinger)

Stocks mentioned in the article
ChangeLast1st jan.
BHP GROUP LTD 0.22% 36.25 End-of-day quote.5.67%
FORTESCUE METALS GROUP LIMITED 0.00% 7.66 End-of-day quote.82.82%
RIO TINTO LIMITED 0.28% 84.96 End-of-day quote.7.96%
RIO TINTO PLC 1.50% 4065 Delayed Quote.8.98%
VALE -0.09% 43.65 End-of-day quote.-14.33%
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