SHANGHAI, Dec 21 (Reuters) - China on Wednesday warned about the risks of importing Iranian iron ore, the second major commodity from the sanctions-hit Islamic Republic under scrutiny as the two also tussle over oil payment terms.
The warning from the Commerce Ministry to domestic companies, which focused on substandard quality and on delivery problems, follows a crude imports spat that has seen China halve its Iranian oil shipments for January.
"I would consider this very similar to the crude oil import limitation by Zhuhai Zhenrong," said an iron ore analyst in Beijing who asked not to be identified due to the sensitive nature of the matter.
"First, the timing is perfect, just on the heels of oil import payment concerns a few days ago by Zhuhai Zhenrong. And secondly, China also used commercial risks as the main reason."
China's top refiner Sinopec, both directly and through state Chinese state trading company Zhuhai Zhenrong Corp, has cut crude imports from Iran by over half in January, sending a signal as the two sides negotiate terms for such sales.
Pressure from the United States and Europe over Iran's nuclear programme has been increasing, with the U.S. Congress last week passing legislation aimed at blocking payments by Iran's oil buyers and EU leaders calling for more sanctions against Iran by the end of January.
COMPLAINTS OF FRAUD
For China to warn on business conditions in some of its trading partners is not new.
On Monday, the commerce ministry called on companies doing business in Morocco to be careful about the payment methods they use, after what it said had been some cases of Moroccan business partners not paying Chinese exporters.
In May it complained about the quality of iron ore shipments from India.
However, the timing of the announcement on Iran prompted some iron ore traders to guess that it might be related to the broader issue of oil and other imports.
"It looks like this is maybe related to the oil issue," said an iron ore trader in Shanghai who imports iron ore from Iran.
"Chinese steel mills have been using more iron ore from Iran, but we can survive if its iron ore supplies to China are cut off," the trader said, adding that he did know of other traders who had had quality problems with ore they had bought from Iran last month.
China, the world's top buyer of iron ore, has been importing more of the steelmaking raw material from Iran as part of its efforts to cut purchases of expensive ore from the top producers Australia, Brazil and India.
Iran was China's fifth-largest iron ore supplier in the first eleven months of the year, behind Australia, Brazil, South Africa and India.
Its iron ore imports from Iran stood at 15.7 million tonnes for January-November, up 22 percent from a year earlier and accounting for around 2.5 percent of its total imports.
China, the world's top buyer of iron ore, is expected to import around 679 million tonnes this year.
Iranian companies have severely damaged Chinese companies' interests by using substandard materials, refusing to deliver materials, or delivering less than what was originally agreed to, the ministry added.
"We have received lots of complaints from domestic companies about fraud regarding iron ore imports," the ministry said in a statement.
Domestic companies should be cautious in selecting business partners when buying iron ore from Iran, and also use letters of credit to minimise risks, the ministry said, adding that some Chinese businessmen who had gone to Iran for business had been physically threatened or attacked.
Chinese mills buy ore from Iran mainly on the spot market, meaning they are not subject to quarterly negotiations as with imports from Australia and Brazil.