BHP boss defends China ties amid iron ore ban reports

Mining giant BHP has moved to calm fears of a major rift brewing over Australia’s lucrative iron ore exports, amid reports Beijing has temporarily blocked Chinese steel mills from buying shipments from the company.

Australia’s biggest miner has refused to confirm or deny reports that Chinese steelmakers have been banned from striking dollar-denominated purchase deals with it in a bid to gain leverage in drawn-out iron ore price negotiations.

However, speaking at a business event in Perth on Wednesday morning, BHP Australia president Geraldine Slattery defended the company’s relationship with the Chinese steel industry as “one that goes back decades and decades”, and insisted the current negotiations were not out of the ordinary.

“We’ve got decades of strong business in front of us,” she said.

“Commercial negotiations are a normal part of that, they happen every year.”

Slattery would not be drawn on how the talks with China’s state-owned iron ore buyer, known as China Mineral Resources Group, were progressing, but moved to play down “conflicting speculation” surrounding rumoured restrictions on BHP deliveries.

“There’s been some speculation, and often conflicting speculation, but I think the key takeaway is we’ve got strong relationships with customers in China,” she said.

“This is a normal part of doing business.”

Iron ore, the raw material that’s turned into steel inside huge blast furnaces, is Australia’s single biggest export, fetching more than $100 billion a year in sales revenue. It routinely accounts for as much as 5 per cent of the nation’s gross domestic product.

China’s steel sector is the top customer of the commodity from Australia by far, so any disruption to BHP’s shipments could leave a significant dent in state and federal government coffers.

While analysts have suggested reports of China’s BHP ban, first published by Bloomberg News in September, may be a negotiating tactic, they also note that Beijing has been increasingly willing to use its market clout to exert pressure on suppliers of key commodities.

In 2020, China slapped an unofficial ban on Australian coal amid a diplomatic stoush with then-prime minister Scott Morrison, leaving dozens of coal ships stranded at sea for months, unable to dock at Chinese ports.

However, if the reported ban targeting BHP turned out to be true, it would mark an “unprecedented escalation” in negotiations about iron ore, analysts said.

Iron ore prices softened this year, as China’s property sector battled an oversupply crisis, subduing the nation’s demand for additional steel.

Australian government commodity forecasts suggest iron ore prices may be set to fall further, especially once a new wave of iron ore supplies hits the market from the China-backed Simandou mining project in Guinea.

While booming Chinese appetite for Pilbara iron ore has delivered years of mega-profits to Australian miners including Rio Tinto, BHP and Fortescue Metals Group, China’s demand has likely peaked and was now at a “plateau”, Slattery said on Wednesday.

However, the growth of India’s steel sector may help offset weakening conditions to maintain demand.”

WA’s iron ore sector was also the world’s lowest-cost producer of the mineral, which would help “protect our margins”, she added.

“Even as we see moderation in the price, which is an expected part of the market, then you continue to have incredibly strong business if we stay productive and competitive.

“There’s a wide future for Australian iron ore, but it would be remiss if I didn’t add that this optimism must be mixed with a sense of reality for what will underpin it.

“If we’re to maintain the impact and the returns that we and the broader community have enjoyed, we must continue to innovate, to invest and to adapt.”

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