China extends freeze on BHP iron ore purchases

China's state-backed iron ore buyer instructed the country's top steelmakers and traders last week to temporarily halt all dollar purchases of seaborne iron ore from Australian giant BHP, Bloomberg reported, citing sources familiar with the matter, according to tekedia.com.

The directive is the latest escalation in Beijing's efforts to exert market power. China consumes about 75 percent of the world's seaborne iron ore and has long sought to weaken the influence of the big three producers - BHP, Rio Tinto and Vale - whose influence on prices has dominated the industry for years, the source said.

At the center of this campaign is China Mineral Resources Group (CMRG), a state-owned company set up in 2022 to centralize iron ore purchases and strengthen Beijing's influence in price negotiations.

• Pressure mounts on BHP

The timing is particularly difficult for BHP, with the world's largest listed miner reporting its weakest annual profit in five years last month, blaming weak demand in China for the fall in iron ore prices. The company has also announced cuts to capital and exploration spending, underscoring how the weakening market is already reshaping its strategy.

Earlier this month, Bloomberg reported that CMRG had urged mills to suspend some purchases from BHP's Jimblebar mine after long-term contract talks failed. Last week's directive extends restrictions on all dollar-denominated shipping, adding to the pressure on the Australian miner.

• Beijing's Price Game

For Beijing, the move is both economic and political. Some experts say that by halting dollar purchases, CMRG is reinforcing China's efforts to shift more of its commodity trade into yuan-denominated contracts, reducing exposure to currency fluctuations while promoting the yuan's international role. The effort is part of a broader strategy to reduce reliance on external pricing mechanisms dominated by Australian and Brazilian suppliers.

The restrictions are expected to have repercussions beyond the iron ore mines. In financial markets, BHP shares are highly sensitive to signals of Chinese demand, and traders will be watching closely for early signs of selling pressure on the Australian and London Stock Exchanges. A prolonged pause in Chinese purchases could hit BHP's stock valuation hard, especially given the outsized role of iron ore in its earnings mix.

Foreign exchange markets could also feel the pressure. The Australian dollar, often seen as a gauge of Chinese commodity demand, has historically reacted sharply to disruptions in the iron ore market. Analysts say further escalation of restrictions could add to renewed volatility, especially if traders view the move as a longer-term shift in China's buying behavior.

Meanwhile, global commodities investors could view Beijing's directive as a test case for how far China is willing to go in reshaping trade terms with major suppliers. Hedge funds and institutional investors are already seeing weaker iron ore futures, and the pause risks reinforcing bearish sentiment across the sector.

While the strategy underscores China's determination to leverage its purchasing power, it also creates uncertainty. For BHP, losing access - even temporarily - to its largest customer could complicate cash flow forecasts and long-term planning. For China, reducing its reliance on a key supplier risks short-term supply chain disruptions if mills struggle to secure alternative supplies.

However, Beijing's directive marks a clear signal that the Chinese state is no longer content to be a price-setter in the global iron ore market. Financial and commodity markets now face the task of deciphering how far this shift will go.