Cranes load iron ore at a port in Nantong, East China's Jiangsu Province. File photo: VCG

China is mulling the establishment of an iron ore pricing center to boost the country's influence in the market, as part of its broad efforts to ensure stable supplies and prices following recent price hikes that had significant impact on Chinese industries. Experts said on Sunday that building a related financial system to enable active online transactions would help gain an upper hand in pricing power.

Xi Zhiyong, general manager of the Dalian Commodity Exchange, said at the 17th China (Shenzhen) International Futures Conference that the exchange will enhance its influence on the prices of important commodities and speed the establishment of soybean and iron ore pricing centers, to serve enterprises in agriculture, steel and other related industries, and ensure supply chain security.

Wang Guoqing, research director at the Beijing Lange Steel Information Research Center, told the Global Times on Monday that through the establishment of a relevant financial system, the online trading of iron ore will become more active, which will have an influence on pricing.

"China, as the world's largest iron ore consumer and major buyer, will witness more contracts and thus its pricing power will be enhanced," said Wang. "Increased pricing power also helps prevent individual iron ore producers from dominating market prices. For China's steel industry, better pricing power can reduce costs and increase profits," she added. 

China has been making efforts to diversify its import sources for iron ore. At least 60 percent of China's iron ore imports come from Australia, but other suppliers such as Brazil and South Africa are believed to have potential when it comes to increased supplies for China.

Iron ore prices declined in November due to weak demand. With China's demand for steel slowing and global players expanding production, industry analysts said that iron ore prices will slide further.

In the first 10 months of 2021, China's crude steel production was 877 million tons, down 0.7 percent on a yearly basis.

"The iron ore pricing center is not likely to encounter any challenges in terms of implementation, but might trigger some responses from the international bulk commodity trading markets," Wang said.

As to when such a center could be established, she said that it should be in line with national policy since gaining pricing power is a long-term process, and the steel industry is also closely linked to the country's carbon goals.

China has been improving the utilization rate of scrap steel, which is considered a necessary move to help reduce dependence on iron ore imports. In 2020, China's scrap utilization reached 260 million tons, and it's estimated to reach 320 million tons by 2025, according to media reports.

Global Times