(Repeats story issued late on Thursday)
* Ban on traders buying low grade ore, mills unaffected
* Unclear what impact will be on Indian ore exports
QINGDAO, China, April 8 (Reuters) - China’s iron ore trading association has banned its members from importing ore with a less than 60 percent iron content, three trade sources said on Thursday.
The ban by the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters (CCCMC) covers trading firms but not steel mills and their licensed agents, the sources said.
One Shandong-based trader said it was part of a joint effort with the China Iron & Steel Association to “rectify” the sector.
“This is absolutely crazy. I can understand why they want to regulate the market and improve the quality but this will do nothing but drive up the prices of higher grade ores,” said a Hong Kong-based trader attending a steel conference in Qingdao.
One owner of a privately-held group of iron ore mines based in Hong Kong said deliveries of Indion ore with 55 percent Fe content were already being blocked on Thursday.
China is the world’s top iron ore buyer because its own supplies are insufficient to supply its steel sector, which last year produced almost half the world’s steel. Most of its imports come from Australia, Brazil and India.
“This is a surprise. We don’t know what the rationale behind this is because most of the steel mills in China do need low grade ores,” said Glenn Kalvampara, secretary of Goa Mineral Ore Exporters’ Association, speaking from the western Indian state of Goa that mostly exports low grade ores to China.
“Earlier there was some news on China wanting to reduce the number of importers. But this is a total surprise,” he said.
STRUGGLING TO UNDERSTAND
With major suppliers offering imported ore with Fe content of 63 percent or more, imports have rapidly pushed out domestic supply, weighing on China's attempt to wring a favourable term price out of the top suppliers: Rio Tinto RIO.AX, BHP Billiton BHP.AX and Vale VALE5.SA.
Those big suppliers will remain unaffected by the CCCMC rule changes, Credit Suisse analyst Melinda Moore said in an email.
“For all the immediate chatter, CS does not expect any impact on international prices or import volumes,” she said. ” International suppliers and traders will switch their sales from Chinese traders to steel mills directly. The rules impact WHO imports, not WHAT is imported.”
She said CISA and CCCMC had passed three “self-discipline measures” in recent days. The other two were disqualifying importers who imported less than 1 million tonnes in 2009 and an agency system to match large and mid-sized mill consumption requirements, with ore resales prohibited.
CISA, which last year failed in a voluble attempt to win a 40 percent price cut from the big three, has urged importers to boycott them for two months to fight their “monopoly behaviour”. [ID:nTOE63105B]
“China is issuing contradictory statements,” said Vipul Sachdeva, a trader based in New Delhi. “On one hand they are saying reduce imports from Rio and Vale. On the other hand they are saying they don’t want low grade ores. Where are they going to get their feed from?”
Sachdeva said India’s exports could suffer as low grades comprise 40 percent of India’s total exports. Almost all of India’s exports go to China, which has imported 106 million tonnes of Indian ore in the last 12 months.
CISA has previously blamed small traders for undermining its position in benchmark price talks with foreign miners last year. Iron ore trading deals have hit world headlines in the past month after four Rio employees admitted taking bribes from small steel mills hoping to get access to supplies at term contract prices.
CISA has vowed to substantially reduce the number of licensed importers and impose strict “guidance prices” for iron ore, but has not had the clout to implement its plans.
Its repeated calls for unity and threats to squash traders who undermine its attempts to impose discipline have had little obvious success and have had analysts scratching their heads.
Credit Suisse’s Moore said in a note to clients this week that CISA’s latest threats would be counterproductive, removing about 30 million tonnes per month of iron ore from the market, about 38 percent of China’s consumption.
Additional reporting by Ruchira Singh
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