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Rumours relating to a report suggesting that BHP chief Marius Kloppers intends to create an exchange for iron ore futures trading were met with disapproval from some market observers in the Far East, reports dealReporter.
It was reported in the Sydney Morning Herald that Kloppers told companies and officials related to the steel-making industry in Beijing that he would attempt to produce a trading platform which would allow hedge funds and bankers to trade in real shipments of iron ore and derivatives thereof.
The report added that, even though the deal may be met with opposition from China and elsewhere, Kloppers believes there is nothing any of his customers can do to stop the takeover of Rio Tinto. Previous reports on other news services have mentioned growing concern from Chinese steel companies that the price of iron ore will increase substantially as a result of a BHP/Rio deal.
A source close to BHP, however, said that he saw the report on Friday, and although he would not comment on the possibility of an iron ore trading exchange being created in the future, he did comment that “Marius [Kloppers] cares deeply about iron ore prices”.
Some Chinese steel makers on Friday said they were unaware of the plan. A source at one, however, said he did not like the idea, when asked about it.
A senior executive in charge of iron ore purchasing at a large listed Chinese steel company said he could not comment directly, as he had not seen the proposal. He would say that, from his personal viewpoint, he did not think that establishing a third party or derivative market for iron ore would be beneficial to Chinese steel makers. The executive said currently there is a negotiating system between the iron ore buyers and sellers and did not see any benefit to Chinese steel makers if the whole world turns to a new iron ore price-forming system.
A Beijing-based government advisor who claimed familiarity with the Chinese metal industry also agreed with the steel company executive. The government advisor also had not heard the report regarding Kloppers’s proposal. But commenting on the idea he said: “It still doesn’t make sense. It doesn’t matter if you put the iron ore price on a derivative market or negotiate it through an over-the-counter channel. A giant supplier is still a giant and will have the same power to dominate the price.”
If the biggest two suppliers merged, buyers would still have to face a larger entity instead of two smaller ones, regardless of whether via a market or through face-to-face negotiations, the advisor explained.
Baosteel executives said they did not see the report and would not comment. China Iron and Steel Association also declined to comment. An executive at Laiwu Steel Group, a Chinese Shandong-based steel company that has a stake sale agreement with ArcelorMittal, revealed that BHP has arranged a meeting with Laiwu tomorrow.
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