‘Negotiating tactic’: BHP shares hit over China export dispute

The escalating row over iron ore exports between China and mining giant BHP remains unresolved, after Prime Minister Anthony Albanese expressed his concerns about the dispute over Australia’s biggest export and called for it to be wrapped up quickly.

The price of iron ore slipped, and BHP shares slumped 2.5 per cent on Wednesday, after Bloomberg reported late on Tuesday that China’s state-run iron ore buyer China Mineral Resources Group (CMRG) had told major steelmakers and traders to temporarily halt purchases of all new BHP cargoes.

There were mixed reports about the dispute on Wednesday and that uncertainty could continue, as China marks a holiday period known as Golden Week.

BHP wouldn’t comment on commercial matters, while the Chinese commodity market pricing firm Mysteel disputed the Bloomberg report and said Chinese steel firms had received no such notice.

Investors said the move looked like a negotiating tactic from China, and politicians including Albanese and the premier of Western Australia, Roger Cook, also referred to negotiations over iron ore prices.

Albanese highlighted that both China and Australia benefited from the iron ore trade, while adding that he wanted to see the matter resolved quickly.

“I am concerned about that and what we want to make sure is that markets operate properly,” Albanese said. “We have seen those issues in the past. I want to see Australian iron ore to be able to be exported to China without hindrance.”

Treasurer Jim Chalmers said he would set up a meeting with BHP chief executive Mike Henry.

Cook said at a press conference in Perth on Wednesday afternoon that the issue wasn’t brought up during his mission to China, but he had been briefed on the issue by BHP’s head of iron ore Tim Day while in Japan last week.

“He’s saying the negotiations are tough. They are subject to a certain amount of strategic gamesmanship for the want of a better description, but I’m confident they’ll reach an agreement,” he said.

“The negotiations are ongoing, and, as you know, in any negotiations, from time to time, the parties have got disagreements. This iron ore underpins both the Western Australian and the Chinese economy, so we’re obviously encouraging all parties to reach an agreement with regards to those contracts.”

Fund managers and analysts said the move was probably part of China’s negotiation over iron ore prices, but they did not think it would make a meaningful difference to China’s demand for the iron ore that BHP sells.

Ten Cap co-founder and portfolio manager Jun Bei Liu said she thought the Chinese government was trying to send a signal that it wanted lower iron ore prices, after recent strength in the commodity’s price.

Liu said her understanding was the pause only applied to BHP ore sold on the spot market, not contracted shipments, and she believed it was a message to other iron ore giants such as Rio Tinto and Fortescue.

“I do think it’s a negotiating tactic for slightly better prices,” Liu said. “I really don’t think it’s going to be that prolonged. At worst, you’re probably expecting a couple of weeks’ impact, which is not going to be that significant.”

Opal Capital chief investment officer Omkar Joshi said the pause appeared to be a negotiating tactic over iron ore prices, rather than something more significant in the trade relationship between Australia and China.

“Ultimately they do need the iron ore, so nothing really changes from that perspective,” Joshi said.

Joshi noted that the China-backed iron ore development in Simandou in Guinea – where Rio Tinto is a partner – is also due to start making shipments later this year. “It may well just be a reminder to BHP and Australia more broadly that ‘we’ve got an alternative source of supply,’ although it is still small in the scheme of things,” Joshi said.

Iron ore is a key ingredient in the manufacturing of steel and ranks as Australia’s single biggest export earner, fetching $138 billion in the past financial year alone, accounting for up to 5 per cent of the country’s gross domestic product.

BHP is a major supplier to China, and RBC analyst Kaan Peker said China could not realistically walk away from the mining giant’s supply entirely. He said if the ban was sustained, it could risk squeezing the margins of Chinese steel mills or force cuts to output.

Iron ore futures slipped 0.4 per cent on Wednesday after rising as much as 1.7 per cent on Tuesday, Bloomberg reported.

With Hamish Hastie and wires

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