MethodologyContact usSupportLogin
Key takeaways:
Swirling market chatter has circulated this week of possible new pricing options in continuing term contract negotiations between a major state-owned buyer and a major iron ore miner, even as the former was heard to have instituted an import ban on all of the latter’s iron ores.
“The term contract negotiation is at a standoff because buyer and seller cannot reach an agreement on prices and the settlement currency,” a market source in Southeast Asia told Fastmarkets.
According to the Jiangsu Iron and Steel Industry Association’s WeChat account, China’s steel industry has been pushing for two key appeals in iron ore term contract negotiations with the major Australian miner:1) Using the Chinese yuan for payments2) Locking in quarterly contracts based on the current spot price of around $80 per tonne.
In contrast, the miner is insisting on payment settlements on the United States dollar and was heard to have proposed a 15% price rise for 2025, which would then bring the price to $109.50 per tonne.
Using the Chinese yuan to pay for imported iron ore is not new, even as China has worked diligently to reduce the dominance of the United States dollar in global trade and push the yuan as a reserve and trading currency.
Since 2019, some iron ore contracts between Chinese mills, such as Bao Steel, Hebei Iron and Steel, Angang Steel, Jianlong Group and overseas miners from Australia, Brazil, Ukraine and South Africa have tried to use yuan-based currency, according to various company news sources.
For instance, over January to September 2024, Hebei Iron and Steel imported about 3.06 million tonnes of iron ore by using a Chinese yuan Letter of Credit (LC), up by 25% compared with the same period of 2023, according to company news on October 29 2024.
“It is part of a larger trend where China is looking to promote the usage of the Chinese yuan across many aspects, not just in commodities,” an iron ore industry source in Singapore told Fastmarkets.
According to the Bank of International Settlement’s 2025 Triennial Central Bank survey, the share of the Chinese yuan in the global foreign exchange markets had risen to 8.5%, higher than the Swiss franc’s 6.4%, but still trailed the dominant US dollar’s 89.2%.
However, BIS noted a significant increase in cross-border bank credit to emerging markets and developing economies in the first quarter of 2025 in the Chinese yuan.
“This was almost entirely due to an expansion in renminbi credit ($44 billion) to borrowers in Asia Pacific, which was largely offset by a contraction in dollar credit (-$40 billion) to those borrowers,” it said in a statistical release.
However, Bastian von Beschwitz, chief researcher in the global financial markets section of the international finance department at the US Federal Reserve said that the yuan’s international role may increase notably over the coming years.
“Over the last couple years, there has been a notable increase in the fraction of China’s trade that is invoiced in renminbi and a corresponding increase in the renminbi fraction of global payments. Over time, these increases may be followed by increased renminbi usage in other areas, such as official foreign exchange reserves,” he said in a research note in August 2024.
In the long term, most Chinese steelmakers want to purchase or price iron ore on a yuan basis, especially owing to increased trading activities at China’s portside market, an industry source in China told Fastmarkets.
Buyers added that they’re more flexible in tonnage and price when procuring iron ore from China’s portside market, compared with large-volume contracts in the seaborne market.
But several analysts and market participants have downplayed the significance of a currency switch in these negotiations. They pointed out that a market for yuan-based iron ore already exists, because the top three major iron ore miners already regularly sell spot cargoes at Chinese ports.
And while there remained active market chatter that term contract negotiations are centered on moving a portion of iron ore trade from US dollars to Chinese yuan, no concrete information has emerged to quantify the exact volume of long-term contracts cargoes that will be priced in the Chinese currency.
“Furthermore, it is likely that such yuan-based payments work only in certain situations. For example, a buyer who has steel sales in Chinese yuan or is hedging commodity prices on Chinese exchanges such as the Dalian Commodity Exchange,” the iron ore industry source in Singapore told Fastmarkets.
The foreign exchange risk remains one of the key obstacles.
“How much Chinese yuan can major companies hold in their treasuries, if their businesses are mainly run in US dollars?” the same iron ore industry source in Singapore told Fastmarkets, expressing skepticism that iron ore payments will be largely based on the Chinese yuan.
Even Chinese steelmakers have expressed their doubts.
“Different miners might have different requirements to make payment via Chinese yuan LCs, and it does optimize payment processing,” a mill source from northern China said.
“But if the pricing of iron ore is based on the US dollar, exchange rate risks still exist,” the source said.
Other market sources said that there will also be disputes around how quality adjustments are calculated – critical factors that determine the final price of iron ore shipments. While these technical details may seem minor, they still represent millions of dollars in contract value given the massive volumes involved.
Some market participants believe that a key point of contention is still price.
“The miner involved in this matter has been selling cargoes at Chinese portside markets at very low prices, leading many steel mills that had signed term contract cargoes last year to express reluctance to renew them this year,” a Shanghai-based source said.
“If the miner is willing to compromise on price, at the very least by ensuring the long-term contract cargoes prices are lower than their portside sales, the dispute could be resolved quickly,” the source added.
Furthermore, market participants believe that a complete ban on the Australian miner’s ores is unlikely because the major state-owned buyer is still the former’s cargoes in the spot market.
Several other market sources also said a yearly average index for term contract settlement was also heard being discussed to replace the incumbent monthly average pricing method, although no one could confirm this.
But this could be difficult, an industry analyst said.
“This is because the long-term iron ore prices are under downward pressure, with an anticipated slowdown in China’s steel consumption, a cap on hot metal output and increased new supply from West Africa,” the analyst said.
Track iron ore prices today with market-reflective price data and iron ore price charts from Fastmarkets.