Iron Ore Surge Prompted by Demand, Speculation, China Says

A recent surge in iron ore prices was caused by changes in demand, market speculation and “unreasonable” pricing methods, China’s top planning body said. The biggest mining company said it hadn’t curbed supplies.

Chinese steelmakers re-stocked iron ore during the traditional “winter reserve” period and ramped up purchases as confidence in the economy improved, leading to an explosive increase in demand in the short term, the National Development and Reform Commission said in a statement on its website.

The three largest mining companies and certain traders either delayed or controlled deliveries to make up for their previous losses, creating a false impression of temporary short supply, according to the NDRC. Some mining companies also bought iron ore from the market to drive up prices, it said.

In response, BHP Billiton Ltd. said it produced record volumes of iron ore in the second half of 2012, all of which it sold and delivered to the market.

“We aim to improve transparency by increasing liquidity in the spot market,” Melbourne-based BHP said in a statement today. “We sell significant volumes on a spot basis, including through widely accessible trading platforms, irrespective of the iron ore price.”

The NDRC said major mining companies based long-term contract prices on “opaque” bidding, pushing prices up even as a very small amount of ore was traded, according to the statement. It didn’t name any producers.

Market Workings

“This is 600 Chinese mills versus whatever number of miners and the market is actually very liquid,” Melinda Moore, a bulk-commodities analyst at Standard Bank Plc in London, said by phone yesterday. “I don’t expect it to have an impact on price. It’s hard to know what the NDRC are trying to achieve with this because markets work as markets work.”

BHP said it was “very normal” for steel mills, traders and producers to both buy and sell cargo to balance their books. “This is also the case on both the Beijing and Singapore platforms,” it said. “Such transactions occurring on the platforms is to the benefit of all market participants in that it supports transparent market pricing and market liquidity.”

Vale SA, the biggest iron-ore producer, declined to comment on the NDRC statement in an e-mailed reply to questions. A London-based official for Rio Tinto Group, the second-largest exporter, declined to comment.

China imported 70.9 million metric tons of iron ore in December, a record for a single month, the planning body said.

— With assistance by Shidong Zhang

(Updates with BHP comment in fourth paragraph.)
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