Big guns all on board for Beijing's new spot iron ore trading platform

Bloomberg reports that iron ore's three giants – BHP, Vale and Rio Tinto – will "soon" sign onto China's first physical iron ore trading platform according to the China Iron and Steel Association.

CISA together with the Beijing Mining Exchange and China's mineral export industry chamber of commerce launched the new spot price platform in January in a bid to shift the balance of power in price negotiations away from the big three.

Combined BHP, Vale and Rio Tinto control nearly 70% of the 1 billion tonne annual iron ore seaborne trade. Fortescue Metals, the globe's fourth largest iron ore exporter, has already become part of the trading system that will begin operating before July.

Bloomberg quotes Zhang Changfu, vice chairman of CISA: “All of the major suppliers will sign accords soon to join. We expect to create a fair, transparent environment for spot iron ore trading. We’ll set up a minimum volume of ore that they should sell through the platform.”

The world's number one miner BHP also has plans for an online trading platform called GlobalORE which it wants to launch later this year.

Liquidity in iron ore swaps trading has grown and many banks including the likes of Goldman Sachs have set up iron ore trading desks, but it still only constitutes a tiny fraction of the market.

The Chinese venture may be the big game changer – the middle kingdom represent 60% of the global iron ore trade – although earlier this week BHP said growth in steel production has already flatlined and prices will see a marked softening by 2025.

A China-led platform will mark the latest shift in the global iron ore business which has been completely transformed in less than a decade.

The price of 62% iron ore never strayed from $10 – $14/tonne for more than 20 years with prices set on an annual basis in secretive negotiations.

Then at the end of 2004 there was a sea change and the big three have never looked back – they put up the price 72%, marking the start of a supercycle and the beginning of the end of the old pricing system.

After hitting a high above $180 in September last year iron ore tumbled to $116 in the space of a month, but has since recovered.

This year the Chinese import price for 62% iron ore fines has hovered on either side of the $140-level and is not expected to get back to record levels any time soon.

Read more on the transformation of the iron ore mining industry over the last decade.