Why China wants to price more iron ore contracts in its own currency
Beijing’s pressure on iron ore prices runs in parallel with moves to build financial infrastructure capable of supporting non-dollar settlement.
SEATTLE (Scrap Monster): China’s renewed showdown with BHP over iron ore pricing is emerging as the latest front in Beijing’s campaign to loosen the grip of the US dollar on global trade.
Beijing has expanded its embargo on some BHP cargoes, ordering steel mills and traders to stop buying “Jingbao fines”, a low grade of the commodity that constitutes a small percentage of the miner’s exports to China.
The move intensifies a stand-off that began two months ago as part of China’s broader push to wield more control over iron ore pricing and to settle more contracts in yuan rather than US dollars.
The directive comes from the state-run China Mineral Resources Group, the powerful trading body created to consolidate Beijing’s purchasing muscle and force global miners to rewrite long-term pricing terms.
Media reports suggest the ban follows an earlier halt on BHP’s “Jimblebar fines”, a Pilbara iron ore grade and one of BHP’s most popular export types, and is designed to pressure the miner during contract negotiations.
Although the embargo affects only a small portion of BHP’s exports, analysts say the timing signals something larger: China is now aligning tactical commodity pressure with a strategic shift toward settling trade in its own currency.
“They have been pushing for companies to settle in [yuan], and now they have more leverage to do this,” Carolin Kautz, a China analyst at consultancy SinoVise, said. “They want to reduce their reliance on American dollars.”
Beijing began in earnest trying to increase usage of the yuan as an international currency after the global financial crisis in 2008.
Back then it was concerned that money-printing by US and European central banks was devaluing its foreign exchange reserves. More money-printing during the COVID-19 pandemic added fuel to the fire.
However, Kautz says the yuan’s growing use in trade did not amount to full internationalisation of the currency, but rather part of a China-led de-dollarisation campaign among large emerging economies.
“This is not about turning the yuan into a reserve currency. Beijing is offering settlement in its own currency to reduce dollar dependence, especially for partners in the Global South,” she said. “The structural barriers like capital controls haven’t gone away.”
Beijing has long bristled at a system in which Australian mining groups capture the upside of global pricing cycles while Chinese mills shoulder currency volatility.
To combat this, it fixes the yuan daily against the greenback while making it easier for other countries – particularly those in the so-called “Global South” – to settle trade and financial accounts in yuan.
Those efforts look to have intensified recently as Beijing looks to hedge against the risk of US financial sanctions and turbulence in the dollar-based financial system.
The yuan was the sixth most used currency in cross-border transactions via the SWIFT payment system in October, according to the latest data.
At last month’s Fourth Plenum political gathering in Beijing, officials quietly dropped the word “prudently” from their pledge to promote yuan internationalisation.
Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered, said the semantics was a signal from Beijing that it would step up its promotion of the yuan as an alternative trade currency over the next five years.
“It doesn’t mean a radical shift,” Ding said. “The People’s Bank of China [PBoC] is likely to do more foundational work, such as improving the infrastructure and facilitating the yuan’s use in trade and investment to make it easier for overseas investors to hold the currency.”
Beijing’s pressure on iron ore prices runs in parallel with moves to build financial infrastructure capable of supporting non-dollar settlement.
In September, China launched a digital yuan operations centre in Shanghai to accelerate cross-border payments, and the central bank unveiled three interconnected platforms for blockchain-based settlement, messaging and tokenised assets.
It is already filtering into commercial practice. China’s steel industry has pushed BHP to settle 30 per cent of its iron ore shipments in yuan, a change affecting roughly $US8billion to $US10 billion in annual trade value.
BHP shipped approximately 295 million metric tonnes of iron ore to China in 2024.
Courtesy: www.afr.com