Investors lose faith in BHP triumphing over China as Rio Tinto and Fortescue benefit from iron ore price spike

Investors have lost confidence in BHP’s ability to emerge from its iron ore trade tussle with China unscathed following fresh bans.

Beijing’s iron ore procurer — China Mineral Resources Group — has reportedly added more of BHP’s Pilbara products to its banned list, marking the biggest escalation to date of a pricing dispute that started in September.

The latest ban is said to include some of BHP’s core products, including fines from the massive Mining Area C operation.

“For BHP, the potential new ban extends overall restrictions to about 30 per cent of BHP’s overall production, or about 90 million tonnes of production,” Macquarie Group analysts stated.

BHP has been embroiled in a tense stand-off with CMRG since late September over demands for WA’s iron ore miners to offer price discounts and settle more sales in Chinese yuan.

Rio Tinto and Fortescue appear to have escaped CMRG’s wrath so far. Both supposedly caved to some of CMRG’s demands months ago and also maintain deeper links with China than BHP does.

Rio’s biggest shareholder is a Chinese company, while Fortescue has taken out large loans with Chinese banks and is buying most of its new mining equipment from Chinese manufacturers.

Shares in BHP were down 2 per cent to $49.95 just before market close on Friday while its iron ore rivals surged — Rio rose 2.6 per cent and Fortescue 4.1 per cent.

Despite the market sell-off, BHP’s shipments from Port Hedland are yet to show signs of slowing down, according to data provided to The West Australian.

On top of the anxiety about CMRG’s latest BHP ban, Rio and Fortescue are benefiting from a worsening conflict in the Middle East.

At least three cargoes of iron ore mined by London-based Anglo American and two from Brazil’s Vale on Wednesday had to divert away from their destinations around the Arabian Gulf. Oman and Bahrain are key iron pellet producers in the region.

Singapore futures of iron ore have risen more than 6 per cent this week to $US109 a tonne, marking the largest weekly gain for the steelmaking ingredient since January last year.

It comes a week after CMRG held a “first congress” meeting in Beijing to elect its inaugural trade union and financial review committees.

CMRG was set up in 2022 to consolidate the purchasing power of China’s steel mills, who are the main customers of WA’s iron ore miners.

“Formalising CMRG’s union and workers’ congress indicates Beijing is embedding the company more deeply into the Chinese Communist Party’s organisational architecture,” Curtin University international relations lecturer Alica Kizekova told The West Australian earlier this week.

University of Western Australia professor of finance Raymond Da Silva Rosa has said the meeting signalled that CMRG is here to stay and will likely have more resources allocated to it.

China’s leaders had tried for a “long time” to get more leverage over Australia’s iron ore producers, according to Dr Da Silva Rosa.

“The surprising thing is that we’ve had an oligopoly on the iron ore supply side but on the Chinese demand side they’ve always had very small steelmakers, so demand has been splintered,” he said.