Major Australian miner - BHP Billiton - agreed with Chinese state-owned iron ore trading arm China Mineral Resources Group together with Chinese steelmakers and traders to switch to settlement in prices in Chinese currency (RMB) for 30 percent of its iron ore spot trading with China, involving CFR-based prices at Chinese ports. The agreement will start from the fourth quarter of 2025, according to market sources and Chinese media.
As SteelOrbis reported earlier, in late September Chinese buyers suspended iron ore trading in US dollars with BHP, and were in negotiations for long-term contracts, aiming to increase the buyers’ power in the iron ore market, which is dominated by the big overseas miners. After negotiations, BHP eventually compromised and agreed to settle in RMB.
The cross-border settlement in the Chinese currency can reduce exchange rate risks, lower financial costs, and enhance procurement initiative for Chinese steelmakers. Meanwhile, the settlement in RMB can enhance the proportion of RMB usage in commodity trade and promote its internationalization process. The settlement in RMB may weaken the monopoly position of the US dollar in iron ore trade and promote trade diversification, market sources have told SteelOrbis.
Meanwhile, BHP has decided to set an observation period for the 2026 long-term contract, which will remain in US dollars for now, and, if the market acceptance of China's RMB iron ore index meets the standard, negotiations on an RMB-based long-term agreement price will be initiated.
Using RMB for settlement not only means a change in currency, but also requires the integration of domestic bank loans, cross-border payment systems, and exchange rate hedging to form a closed loop for the whole process.
Four major miners - Rio Tinto, Vale, BHP Billiton and Fortescue, account for 70 percent of iron ore supply to China, with BHP’s shipments totaling 295 million mt in 2024.
As for the spot market reaction, sources polled by SteelOrbis agree that it will bring more power to Chinese mills in negotiations and in the coming months it may help to improve their profitability, which narrowed in September due to high iron ore prices and no visible improvement in steel demand. However, after the holiday, iron ore prices, as expected, increased slightly on the first working day, October 9.