Australian iron ore producer Fortescue Metals Group has started marketing one of its iron ore products at a few Chinese ports recently — the first Australian miner to venture into China’s port stock market, industry sources said.
The producer’s Kings fines was heard to have been sold at Qingdao and Rizhao ports, as well as at some ports along the Yangtze River, and the transactions were in Chinese Yuan, sources said.
“I heard parcels of Kings fines were sold at Qingdao port,” said a Shanghai-based trader.
Market participants said FMG has appointed an international trading house based in Singapore as the agent because FMG does not have a company registered in China with a license to sell port stocks.
“FMG has one agent opening L/Cs [letters of credit] and doing financing for it. After clearing customs, it [FMG] markets the cargoes at the port itself,” said a Shanghai-based trader.
In response to the matter, FMG CEO Nev Power said: “We are not currently selling product from port stocks,” in an email last Friday.
The agent could not be reached for comment this week.
An international trader said it makes sense for the miner to appoint an agent as it is time consuming to apply for a license to sell port stocks, especially when the Chinese government is tightening its grip on capital outflow from China.
“I think the reason for FMG to market at local ports is to reach out to buyers that were not their customers previously. There are more buyers who want to buy in smaller lots of 5,000-10,000 mt than buy in large Capesize vessels, especially when the price for steel feedstock can be so volatile,” said the international trader.
As to why the miner is marketing Kings fines instead of other flagship products, some sources said it may be difficult to sell Capesize vessels of lower grade Kings fines to Chinese end-users, who are chasing after productivity when the steel margins are very strong.
Other sources thought the move was to avoid direct competition with its term and spot customers who are already marketing Super Special and Fortescue Blend fines at the ports.
“Not many people want to buy Kings fines in the seaborne market, so instead of selling low and destroying the pricing, it’s a better option to sell in Yuan currency at the ports,” a Zhejiang-based trader said, adding that FMG was primarily targeting end-users.
The same Zhejiang trader said the initiative could be a move by the miner to gauge whether it could sell its other products at the ports in the future.
For the seaborne market, the Australian miner prices its seaborne iron ore products namely Super Special, Fortescue Blend and King fines using the Platts 62% Fe IODEX assessment with an adjustment for iron content, based on market dynamics.
Port stocks are becoming increasingly popular as more Chinese end-users prefer prompt cargoes, as well as buy in smaller parcels without opening letters of credit.
Brazil’s Vale — the first international miner to enter the Chinese port stock market — currently blends Brazilian blended fines at the northern Chinese ports of Caofeidian, Dalian, Yantai, and at eastern ports of Qingdao, Dongjiakou and Lianyungang and sells to their customers in US dollar and Chinese Yuan currencies.
But some market sources were concerned that more miners may enter the port stock business in the future, leaving little room for traders to actively market the iron ore products.
“What will be our job if more and more miners start selling their products in yuan at the port themselves?” said a trader in southern China.
FMG Price at posting:
$5.75 Sentiment: Buy Disclosure: Held
(20min delay)