SHANGHAI, May 10 (SMM) -- The Chinese spot iron-ore trading platform, long-awaited by China Iron and Steel Association and the entire Chinese iron and steel industry, officially started operation on May 8. The primary purpose of establishing the spot trading platform by the Chinese iron and steel industry is to gain imported iron ore pricing power to improve their long-term low profitability. But whether it can move in the direction as wanted has induced different views. Steelease believes that to build this platform as China’s authoritative pricing center is difficult. It is even more difficult to gain the say over pricing of imported ore just relying on the platform.

As of now, 138 companies have joined the spot trading platform, including the three largest mines, FMG and other major iron ore producers in the world, as well as Baosteel, Angang Steel, WISCO, Shougang, Hebei Iron & Steel, Sinosteel, Minmetals, Sinochem International, CITIC Metal, China National Building Materials and other domestic steel mills and traders. What must be borne in mind is that how to promote deals, especially large deals, is the most fundamental issue. Only large trading volumes enable the platform to challenge Platts IODEX. Steelease is not optimistic on the trading volumes the platform’s members will contribute.

It is widely known that major mines have been selling most of their ores through agreement with steel mills, indicating price and volume have been already determined. Such information is also kept confidential, largely due to the fact that steel mills and mines may seal deals at prices lower than in the market out of their respective interests and to maintain cooperation. This further indicates that the two parties are not likely to disclose such information, given their respective interests, to trade most iron ore on the transparent platform.

In addition, the imported iron-ore market is still a seller market. Overseas miners have significantly stronger say over prices than domestic steel mills whose reliance on iron ore import is still increasing. Those miners have no motive to give up such advantage. While domestic steel mills do face high purchasing costs and weak say over prices, hidden individual interests during iron ore trading will also hamper acceptance of the transparent trading mode.

High transaction fees of the platform are also an obstacle for its development. A Steelease source disclosed that members of the platform need to pay USD 30,000 or USD 5,000 yearly to gain access to the platform. That excludes transaction fees of USD 0.125/mt. Baosteel, for instance, imported 32 million mt iron ore in 2011, which would induce USD 4 million of transaction fees if deals were done on the platform.

Above taken, the platform has first to prove its ability to promote enough trading volumes, which are the base of gaining stronger say over pricing.