China freezes BHP iron ore cargoes amid pricing dispute

China has ordered its steelmakers and traders to suspend purchases of dollar-denominated seaborne iron ore from BHP (ASX: BHP) as annual price talks stall.

The directive from China Mineral Resources Group (CMRG), the state-run buyer created in 2020 to strengthen Beijing’s hand in global negotiations, blocks new contracts, even for cargoes already en route from Australia, Bloomberg News reported.

Talks between BHP and CMRG have so far failed to produce an agreement, with the dispute believed to centre on discounts applied to BHP’s medium-grade ore. BHP, the world’s largest mining company, is China’s third-biggest iron ore supplier after Rio Tinto (ASX: RIO) and Vale (NYSE: VALE).

The company declined to confirm the order but said shipments from Western Australia’s Port Hedland remain uninterrupted. Analysts suggested the suspension is a bargaining tactic. “We view this ‘ban’ as more of a negotiating strategy, most likely an effort to secure lower long-term prices,” RBC wrote in a note Tuesday.

Market tensions

Analysts also said diverting purchases to rivals Rio Tinto, Vale or Fortescue (ASX: FMG) could prove costlier and strengthen miners’ pricing power as mills compete for supply. 

Tom Price of Panmure Liberum noted the move reflects Beijing’s growing confidence: “Would China have done this a decade ago, when it heavily depended on imports? No way.”

The timing is expected to have minimal short-term impact on Chinese mills, which have built up inventories ahead of national holidays. Still, the standoff underscores tensions in the global iron ore market as slowing demand weighs on prices.

BHP reported in August its lowest annual profit in five years and cut exploration spending, as slowing Chinese demand weighed on iron ore prices.

(With files from Bloomberg, Reuters)