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China Wants To Overhaul The Iron Ore Pricing System

Fortescue’s loading facility at Port Hedland. Photo: Bloomberg.

Even as iron prices continue their downward spiral, the Chinese government agency responsible for the country’s steel mills is seeking to overhaul the way prices are set, according to the AFR this morning.

BHP and the other big iron ore producers “should not abuse their dominant market position”, The National Development Reform Commission said on its website.

But a BHP spokesman told the AFR via email that:

“It is clear from recent iron ore price movements that prices are responding quickly to changes in the supply and demand balance and that the ­market is transparent and functioning well.”

The timing of the comments is interesting given the big fall in prices over the course of 2014 and could be related to the recent reporting season in Australia and bullish forecasts about where Australian producers sit on the cost curve relative to other producers – particularly Chinese miners.

As China’s property market falters enough for the RBA to warn it is an economic risk to the nation, it seems the pressure on iron ore prices won’t let up anytime soon.

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