An iron ore mining site in Australia Photo: cnsphotos

Blatantly misleading overseas media reports about Australia's iron ore trade with China have destabilized the market and possibly contributed to soaring prices, said industry insiders, who spoke of the need to avoid market panic that will cause disruption for the supply chains on both sides.

The Guardian reported on Sunday that Australia's losses from trade tensions with China are being offset by rising iron ore prices. 

China's steelmakers are understandably frustrated as they watch the price of iron ore — the commodity on which they are so dependent — soar into the stratosphere and eat away at their profits, the Sydney Morning Herald reported on Tuesday, noting that the most frustrating element is there is little they can do about it.

The report claimed that prices are determined by supply and demand, and one of the major reasons prices are rising so much is that China's appetite for iron ore is increasing faster than supply.

However, industry insiders said that although bilateral tensions have caused rising market uncertainty, some provocative media reports have also played a negative role by adding fuel to the fire and destabilizing the situation further.

A source with Rio Tinto told the Global Times on Wednesday that in some cases too much attention is being given to the issue and some aspects of it are over-interpreted by the media, without giving details.

"Because of the tension in relations between China and Australia, there is indeed concern in the market, but there are also some people who take advantage of this situation to hype the issue and cause panic, which leads to higher prices," the source said, expressing concern that any disruption in trade will affect all industry participants in the supply chain including Rio Tinto and Chinese traders.

In response to soaring prices, Luo Tiejun, vice president of the China Iron and Steel Industry Association, said on November 11 in a video conference with Simon Farry, vice president of sales and marketing for Rio Tinto's iron ore business, that Rio Tinto has been making many "high-premium transactions" on its platform, and price hikes have exceeded companies' expectations. The pricing mechanism is unreasonable, Luo said.

Since 2015, China has relied on imported iron ore for more than 80 percent of its supply. With steel prices up less than 15 percent since the start of the year compared with a big rise in iron ore prices, upstream cost increases are hard to digest.

Steel prices in 2017 and 2018 were not the highest in history, but when iron ore cost $70 or $80 per ton, steel mills were profitable, a Chinese steelmaker told the Global Times on condition of anonymity on Wednesday.

"Now the price has skyrocketed to $150 to $160. The upstream end is devouring the profits of the entire industry chain. How can the downstream survive?" said the steelmaker.

Another factor is the pricing mechanism itself, which has allowed prices to seriously deviate from the fundamentals of supply and demand, industry insiders said, noting that iron ore spot trading is based on index pricing.

China remains the world's largest importer of iron ore, with a total of 1.06 billion tons imported in 2019. Of this, about 70 percent was from Australia and about 20 percent from Brazil, according to China customs.

However, Brazil's ability to export iron ore has declined since the Tamsui Valley tailings dam collapsed in January last year, and Simandou, in Guinea, has yet to produce iron ore, so the Pilbara region of Western Australia has become the main source of iron ore destined for China, media reports said.


Newspaper headline: Industry insiders urge fair reporting