Domestic steel companies exit Singapore index platform iron ore financial resistance

December 30, 2018

For BHP Billiton, the iron ore spot trading platform being set up in Singapore will face “ischemic” risks without the addition of Chinese steel mills. An iron ore trader who had just returned from Singapore told the “Economic Information Daily” reporter that many domestic large-scale iron ore trading companies and steel mills that originally intended to join the “Global Iron Ore Spot Trading Platform” as shareholders have all Paused or withdrawn from this plan.

“This includes many large domestic steel mills and trading companies.” As an important part of the trading platform, this clear signal does make BHP Billiton confident that it is “somewhat difficult.” The reporter learned that since November last year, BHP Billiton has already begun to visit major steel mills and trading companies in the country and hopes that domestic companies can join this platform in the form of shareholders. According to statistics, this platform is called the global iron ore spot trading platform, which is planned to be built by global COAL. The biggest initiator is BHP Billiton, one of the three major mines. This platform is also considered to be another attack launched by BHP Billiton in order to realize the financialization of iron ore.

According to reports, the shareholder composition plan for this platform is 40% for steel mills, 40% for mines, and 20% for traders. The operation will adopt a membership system. "The preparation of shareholders and membership-based operations mean that the participation of Chinese steel mills is significant for this platform." A person in charge of the China Iron and Steel Association told reporters that on the one hand, China is the world's largest demand for iron ore, and the other On the one hand, China is also the largest iron ore spot trading market, and the collection of iron ore spot indices is also completed in major Chinese ports. It goes without saying that whether BHP Billiton’s spot trading platform plans can achieve the expected results depends largely on the participation of the largest customer base of Chinese steel mills.

At the China Iron and Steel Association's 2012 directorate (enlargement) meeting held recently, the president of the China Iron and Steel Association and chairman of Shougang Corporation Zhu Jimin revealed to reporters that the global iron ore spot trading platform established by BHP Billiton The association has already held two presidential conferences for discussion, and has also communicated with Minmetals several times. We all agree that companies can learn about it, but don't join it easily, otherwise, the right to speak in the industry will be more controlled overseas. Behind the few words, the position of China's large steel companies on the matter has been fully revealed.

In fact, from the cancellation of the long agreement price in the quarter to the quarterly pricing in 2009, and then evolved into a flexible pricing model, BHP Billiton is the most aggressive among the three major mines that has promoted the “financialization of iron ore”. Because there are many financial capitals behind it, turning iron ore into a financial derivative has also become the biggest goal.

The reporter learned that after the long-negotiated contract price model was abolished, quarterly pricing and monthly pricing based on the iron ore index became the main mode of cooperation between China's steel mills and the three major mines. At present, there are three iron ore indexes in the world: the Platts Index, the TSI Index, and the MB Index. Under the impetus of BHP Billiton, the Platts Index has become the reference standard.

It is noteworthy that, in more than one year of operation, domestic institutions generally questioned the Platts Index because its price was subject to an inquiry, and the source of the collected data was not announced. This will undoubtedly be the reason why BHP Billiton plans to build an iron ore spot trading platform. BHP Billiton has publicly stated that it hopes to establish such a spot trading platform. After a certain period of development, it will form an iron ore index based on spot trading and eventually form an internationally recognized iron ore index.

An industry insider who did not want to be named commented on the reporter. In fact, BHP Billiton expects to turn Singapore into a hub for iron ore price formation, thus turning iron ore into a market. Singapore is a country with a high degree of capital openness, and it is also a financial center. If the iron ore market becomes a financial and speculative market, it is very unfavorable for steel industry.

Zhang Jiabin, an analyst at Union Metals Mine, said in an interview with the reporter that from the current situation, the establishment of a spot trading platform to generate prices through open and transparent transactions is more operable than the use of an index price inquiry and other methods. Fairness, prices will be closer to the real market level, which is the general trend. “From the current situation, the Chinese steel industry still has great concerns about participating in BHP Billiton's spot platform. This shows that there is a great possibility of establishing a similar platform in China, but this platform is passed by the China Iron and Steel Association. It is still unknown whether the forces will be established on their own or be built by other domestic companies, he said.

The reporter learned that Beijing International Mining Exchange has started to plan to launch China's iron ore spot trading platform last year. Its operation mode is similar to the “Global Iron Ore Spot Trading Platform” that BHP Billiton Singapore has established.

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