The BHP Group Ltd (ASX: BHP) share price is down more than 1% on news of a reported Chinese ban on BHP’s iron ore.
BHP is one of the world’s largest miners in the world. It’s a major iron ore producer and also mines copper and coal. The miner is also working on a potash (fertiliser) project.
Iron ore ban?
According to reporting by various media, including the ABC, the main Chinese buyer of BHP iron ore has temporarily paused purchases as contract negotiations faltered. This was originally reported by Bloomberg.
China is the key buyer of global iron ore and China Mineral Resources Group (CMRG) was formed in 2022, seemingly to give a stronger negotiating position with iron ore producers such as BHP, Rio Tinto Ltd (ASX: RIO), Fortescue Ltd (ASX: FMG) and (Brazilian) Vale.
However, Chinese commodity analysis outfit Mysteel contradicted that report, according to the ABC.
The ban was seemingly confirmed by Prime Minister Anthony Albanese when he said earlier today:
I am concerned about that and what we want to make sure is that markets operate properly. Of course, we have seen those issues in the past.
I want to see Australian iron ore to be able to be exported to China without hindrance. That is important, it makes a major contribution to China’s economy but also to Australia’s.
These measures are always disappointing. Let’s hope, certainly, that they are very much short-term.
Sometimes when people are negotiating over price, sometimes these things will occur. I want to see this resolved quickly.
The ABC reported on comments from Kaan Peker at RBC Capital Markets, who said:
We view this ‘ban’ as more of a negotiating tactic, most likely an effort to secure lower long-term prices.
On government instructions steel mills could try to offset BHP volumes via Fortescue, RIO, Vale, domestic ores, or stockpiles, but in aggregate it would be at higher cost and efficiency loss and this would be at the margin (competitors could currently only absorb a very small portion of BHP’s volumes).
Final thoughts on the BHP share price
It’s troubling news if the business isn’t able to sell its main commodity to its main customer. But, I don’t think this will be a long-term pause – China needs the iron ore.
But, it shows the downside of relying on one buyer. I’m not sure BHP shares are a good buy right now, particularly because the BHP share price is fairly close to its 52-week high. I’d prefer considering buying at a 52-week low.
