Reuters: Financial Services and Real Estate: Promising start for China iron ore trading platform

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Promising start for China iron ore trading platform May 8th 2012, 10:16 Tue May 8, 2012 6:16am EDT * China's CBMX says three cargoes sold via platform * Traders says volumes need to rise to draw market interest * Platform is part of China's aim to have more say over prices By Manolo Serapio Jr and Ruby Lian SINGAPORE/SHANGHAI, May 8 (Reuters) - An Australian cargo was among three sold via China's first physical iron ore platform on Tuesday, a promising start for the electronic trading system, although traders say volumes must rise before the bourse can create price benchmarks. The platform, run by state-owned China Beijing International Mining Exchange (CBMX), is the boldest effort so far by the world's top iron ore buyer to determine pricing, an area it believes has long been dominated by global miners Rio Tinto , Vale and BHP Billiton. The exchange said 165,000 tonnes of Australian 61.5-percent grade Pilbara iron ore was sold via the platform at $145 a tonne, including freight cost, which traders said was on par with current market levels. Another 20,000 tonnes of Brazilian 65-percent grade Carajas fines stockpiled at a Chinese port were also sold at 1,080 yuan per tonne. A Shanghai-based trader said that translates to about $153 a tonne, or $3 less than a previous market deal for a similar grade. A third cargo, with 57,000 tonnes of 54-grade fines, was sold at $102 per tonne, the bourse said. Outside the platform, traders said they had not seen any deals in the open spot market where some Indian low-grade cargoes are still on offer. "It's heartening to see such support coming from buyers and sellers who are willing to do trades through the screen," said a trader in Hong Kong. "However, participants are worried about counterparty risk and more importantly how active are Rio, Vale, BHP going to commit through this platform." STEEP FEE The exchange currently has 138 members, including the big three miners and top Chinese steelmakers Baosteel, Hebei Steel and Wuhan Steel. CBMX charges a commission fee for both buyers and sellers of 0.125 yuan or $0.02 per tonne, which most traders, used to fee-free deals, find steep. "It's quite expensive. But it all comes down to the volumes it can attract. If it gets enough liquidity, then players will be obliged to join," said a trader in Singapore. The exchange believes it will only realise its price discovery function when its annual trade volume hits 100 million tonnes or even 200 million tonnes, according to a senior executive of CBMX who declined to be named as he was not authorised to talk to the media. China's steel sector imported a record 686 million tonnes of iron ore last year, up 11 percent from 2010, but a slower economy this year was expected to cut import growth to single-digit levels. China Railway Materials Import & Export Co Ltd, which trades around 20 million tonnes of iron ore annually, expects to shift around 30 percent of its spot iron ore trades to the platform this year. "We don't plan to transfer all our material to the platform, but we can try as much as possible," said Xue Xiaolin, the company's general manager. Link this Share this Digg this Email Reprints

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