UK-Australian mining firm Rio Tinto will start selling iron ore in China's portside markets, joining other mining firms taking a more active approach to regional markets seeing an increased role in steel producers' purchasing.
It will begin selling its less liquid niche products at the ports of Rizhao in Shandong and Caofeidian in Tangshan, Hebei, with the first shipment scheduled to be discharged at Rizhao this weekend, its vice-president of sales and marketing Simon Farry told the 19th China International Steel and Raw Materials conference in Qingdao today.
"We understand that sales at Chinese ports are playing an increasing role for our customers for just-in-time deliveries and inventory management," he said.
As a first step, it will begin with sales of products including SP10, PB lump and concentrates from its joint venture Iron Ore Company of Canada.
Chinese portside markets trade in much smaller volumes than seaborne cargoes, with cash-based sales and for immediate delivery on a free-on-truck basis.
Trading firms and steel producers dominate the secondary portside markets, reselling ore bought in seaborne spot trades or in long-term contracts with mining firms. Sellers can choose to sell on a $/dry metric tonne (dmt) cfr basis in seaborne markets, or land the cargo and sell on a yuan/wet metric tonne (wmt) basis at ports, depending on the spread between markets.
The Argus PCX index at 731 yuan/wmt fot Qingdao yesterday equates to a seaborne equivalent of $94.80/dmt cfr Qingdao, or a $5/dmt premium to the Argus 62pc ICX seaborne index at $89.80/dmt cfr Qingdao yesterday.
Portside prices have held at a premium to seaborne prices for much of this year. Mining firms would have collected more of this premium for very prompt sales. Portside iron ore trades also contribute to market views on brand differentials.
Brazilian mining firm Vale was the first main mining firm to directly sell into portside markets. UK-Australian producer BHP has been selling iron ore out of bonded warehouses as part of a trial since April.
Australian mining firm Fortescue Metals began direct portside sales in April and expects them to grow to 5pc of its overall sales into China, its chief operating officer Greg Lilleyman told the conference. Customers want the smaller lots and expedited delivery. "It is so far proving to be popular among our customers."
Rio Tinto is also developing a mobile phone app with a Chinese partner that will allow buyers to handle the portside transaction online, Farry said. It is also working with Chinese authorities to set up a payment system so the entire transaction can be handled in the app.
Rio Tinto was demonstrating portside trading system in meetings with traders at the conference. A trader said his firm may help test the system.
