Commodity Online
BEIJING: There is news from Beijing which may hit the iron ore prices in the global market. China is planning to crack down on speculative trade in iron ore.

The Communist country believes that speculative trade is the reason for the soaring import of iron ore.

China Iron and Steel Association has issued a statement announcing its determination to regulate iron ore trading market by forbidding speculative trading of the imports.

It also appealed to abolish the Rizhao international iron ore trading center. These announcements came at a time when China is involved in talks to finalise iron ore prices for the year.

Insiders believe the statement of CISA did nothing but showing its firm attitude towards the on-going iron ore negotiation, but it is expected not to impact much.

The unloaded iron ore at Chinese ports is expected to beat 55.5 million tonnes in May a rise of 24.6%YoY while the figure during the first four months posted a total of 184.97 million tonnes gaining by 20.5%YoY.

CISA earlier said the soaring imports of iron ore are mainly driven by speculative traders and small steel mills, especially dealers stockpiling this resource in prospect of price rise.

The top five importers are all dealers this year while in past few years there were only two or three out of top twenty importers.

Chinese iron ore resource is in a pinch, which can be well portrayed by the data from Zheshang Securities Steel Division. The iron ore import price averaged USD 75 per tonne in the first four months, sharply dwindling 41% from last year mainly due to the lower import CIF prices than home market.

Analyst said now the Australian ore stood at USD 60 per tonne CIF meaning less than CNY 500 per tonne while in domestic market offers of the same grade are about CNY 520 per tonne or even more. In February domestic ore once climbed up to USD 86 per tonne. Currently, the falling room for ore market is slim which partly explained the scoffing domestic steel mills and traders.

The disordered iron ore import activities undoubtedly have pushed this biggest importer country into a further awkward situation in the ore talk.

So CISA made this statement, saying that speculation in iron ore trading market is not allowed and a probe will be launched by CISA and related government authorities into those who go beyond their duty in trading and their import business will be stopped during investigation. The latest news reported that stakeholders of Rizhao iron ore price indices center have accepted the ban decision of CISA.

Some mining enterprises and traders coincide with industrial analysts in the belief that CISA statement will have ignorable impact in light of the difficulties in its fulfillment. The key is to push down the steel capacity.

The root cause behind China's constant failure in iron ore negotiations in past few years is that the booming steel industry in the country leads to a huge growth of demand for iron ore, paying solid floor for international suppliers to push up prices. If China ever hoped to strengthen its right to speak in the annual talk, the key is to strictly abide by the regulations to wash out the backward capacity, accelerate the industrial restructuring and improve corporate acquisition and consolidation.