The iron ore price outlook may be darkening with China’s latest plans for the commodity.
It has already been a tricky couple of weeks for iron ore as the price has dropped over US$10 per tonne over the last 10 or so days.
The Australian Financial Review reported that “China’s state planner and the market regulator told some iron ore traders to release excess inventory and reduce stocks to reasonable levels following a joint investigation in Qingdao, one of the country’s largest iron ore ports.”
But there’s more potential change on the cards.
China’s platform plans to control the iron ore price
According to reporting by Bloomberg Quint, China wants to regain control of iron ore prices with a platform where all transactions have to be done through a single state-backed platform that is being worked on.
The current laws are that Chinese businesses, such as the steel producers, can make their purchases independently.
This platform aims to increase China’s ability to influence the price of commodities.
It was reported by Bloomberg Quint that Chinese officials want to ensure limited inflation with possible upcoming stimulus measures that may lead to higher steel demand.
It wouldn’t be unique
Iron ore wouldn’t be the only commodity that centralised negotiations happen with, if this went ahead. There is reportedly a group of leading copper smelters in China that already do this for their annual supplies. This method could be tricky for how many buyers may be involved.
Other tactics to control the iron ore price
Bloomberg Quint also referred to some other strategies that China may pursue to control and reduce the iron ore price. The government wants the big steelmakers to become bigger by making corporate deals like acquisitions or mergers. Other ideas included more domestic output and the buying of stakes of mines outside China.
Which ASX mining shares could this impact?
Time will tell how this impacts the ASX miners.
But there are some very big iron ore mining businesses on the ASX like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG) and Mineral Resources Limited (ASX: MIN).
As commodity businesses, the price of iron ore can have a major impact on the movements of share prices and the profit-making potential of each company. Will each of those miners have to use that new platform? And what will the cost of using that platform for businesses be?
The post The iron ore price outlook could be darkening amid China’s latest plans appeared first on The Motley Fool Australia.
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More reading
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- Why has the Mineral Resources (ASX:MIN) share price tumbled 28% in a month?
- Why new iron projects could drive the Fortescue (ASX:FMG) share price higher
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Motley Fool contributor Tristan Harrison owns Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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