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China May Limit Iron Ore Traders Through New Rules

China, the world’s largest buyer of iron ore, may reduce the number of qualified importers of the commodity with new rules for the steel industry soon, paving the way for mills to improve their price bargaining power.

The new rules will include standards on capital requirements, energy consumption and the environment, Luo Bingsheng, vice chairman of the China Iron & Steel Association, told reporters in Beijing today, without giving details. Iron ore is a steelmaking ingredient.

The steel association, representing China’s largest mills, wants to reduce the number of licensed iron ore importers, as it blames smaller buyers for inflating prices. Restrictions, if imposed, may extend a decline in Chinese iron ore imports, which fell for three consecutive months to June.

“Traders should meet the industry’s environmental and energy consumption standards and have sufficient capital,” Luo said. “The rules will include detailed standards on these aspects. The number of qualified traders will probably decline, in line with those rules.”

In February, the Ministry of Industry and Information Technology said it will limit iron ore traders in a new steel industry policy to be released soon. The government announced environmental and power standards for steelmakers last month, capping discharge of waste water and air emissions.

Imports Decline

Iron ore imports by China may continue to decline this quarter, Luo said. Purchases had dropped 9 percent to 47.2 million metric tons in June from May, as government measures to curb the property market damped steel demand. Imports rose 42 percent to a record 628 million tons last year.

Slowing steel demand forced 40 percent of mills to cut output or put plants on maintenance this year, Luo said, without naming companies. Costs of production have risen while steel prices have dropped since April, he said.

“Facing higher costs and lower prices, steelmakers’ margins will be further reduced, so the situation this quarter is very tough,” Luo said.

Domestic prices of hot-rolled coil fell for seven straight weeks to July 16. The average import costs of iron ore jumped 46.4 percent in the first half from a year ago, the steel association said.

China should reduce supplies by foreign companies to just one-third of its requirements by 2015 by boosting domestic output and investing overseas, the steel association said July 30. The nation wants to cut purchases from Vale SA, BHP Billiton Ltd. and Rio Tinto Group, which account for three-quarters of global trade, after they dropped a four-decade system of setting annual prices and raised rates twice this year.

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