Posted on 14 Jun 2013
China plans to scrap a decade-old iron ore import licensing system this year, an industry source with direct knowledge of the matter said, opening up an import market that takes two-thirds of the world's international iron ore trade.
The move could also cut costs for domestic steel mills by eliminating licensed middlemen charging commissions for imports.
It could also mark the end of years of efforts by China, alarmed by its growing dependence on imports and the dominant role played by the likes of Rio Tinto and Vale, to wrest pricing power away from the big miners by strictly regulating trade.
“China will open up its iron ore trade from the second half of the year,” said the source, who declined to be named as he was not authorised to speak to the media. “Import qualification licences will no longer be required in order to make the industry more market-oriented and give steel mills more choices.”
China imported a record 743 million tonnes of the commodity in 2012, up 8% from the prior year. Iron ore traders will only require the same routine licences issued to other importers a more streamlined process and will no longer need approval by government-backed industry bodies like the China Iron and Steel Association (CISA).
The old licensing system was part of China's efforts to make the iron ore industry speak with “one voice” when dealing with major foreign suppliers.
The system was also aimed at stamping out unlicensed traders who were blamed for driving up prices through speculative buying.
That campaign proved counterproductive, instead creating a grey market for middlemen to rent out their permits.
CISA and the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters (CCCMC), a unit that helps regulate iron ore trade on behalf of the Ministry of Commerce, worked together to issue licences to importers.
“Some traders that held licences made a huge profit by selling imported iron ore to those unlicensed buyers over the past few years and the move means that they might lose the advantage,” said an iron ore trader in Shanghai.
