Iron ore rules face doubts
Author:Network sources Source:Network sources Date:2013-04-27

Industry insiders were generally skeptical Monday about the new rules the China Iron and Steel Association (CISA) is reported to have drafted, which would force applicants for iron ore import licenses to join a domestic trading platform in an attempt to boost the country's control over the raw material prices.

Chinese iron ore importers who want to apply for new import licenses are required to join an iron ore trading platform under the China Beijing International Mining Exchange (CBMX) and demonstrate a trading volume of at least 551,155 tons there, Reuters reported Monday, citing a document it obtained from an anonymous source.

With the aim of strengthening government pricing power over iron ore, the platform, jointly sponsored by CISA, the CBMX and the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters, has seen a low trading volume since starting operation on May 8, 2012. Only five deals were concluded last week on the platform for a total of 338,000 tons of iron ore, according to CBMX figures.

However, both CISA and CBMX claimed to have no idea of such a document and declined to comment on the report when contacted by the Global Times Monday.

Industry insiders also appeared skeptical about the new rules.

"Authorities do hope the platform can attract more traders and steel mills, but it sounds quite strange to use import licenses as an incentive tool," Xu Xiangchun, information director with mysteel.net, a steel information provider, told the Global Times Monday. "It is unlikely to have much impact because a license is not that necessary and companies can always commission a licensed trader to import iron ore for them."

"Even if the rules take effect and more companies join the platform, it would still be hard for the platform to increase liquidity," Chen Yan, an iron ore analyst with steel industry portal steelhome.cn, told the Global Times Monday.

The main reason for the light trading volume is that traders derive little benefit from the platform, which only adds to transaction costs, Chen went on to explain.

The platform charges a transaction fee of 0.125 yuan (2 cents) for each ton traded there, according to its official website.

"We failed to see the need to pay an extra transaction fee to trade on the platform with old customers, who have already done business with us in the usual way for a long time," Li Guangjun, an assistant manager at Royal Advance (H.K.) Investment Ltd, an iron ore trader, told the Global Times Monday.

A member of the platform from its launch last May until the beginning of this year, Royal Advance imports around 5 million tons of iron ore on a yearly basis, but has never concluded a deal on the platform, according to Li.

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