BHP shares lower as RBC calls China shipment ban 'negotiating tactic'
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The news: BHP shares slipped in morning trade after China’s state-run iron ore buyer, China Mineral Resources Group (CMRG), ordered steelmakers and traders to suspend purchases of all new BHP cargoes.
The numbers: BHP shares were down 1.5% to $41.88 at midday AEST, having also dropped in London (-2.2%) and New York (-0.8%) overnight.
The context: CMRG told major steelmakers and traders to temporarily halt purchases of all new BHP cargoes, Bloomberg first reported. The move, which follows a ban placed on BHP's Jimblebar blend fines in September, relates to failed negotiations over long-term supply contracts and pricing disputes between CMRG and BHP.
RBC Capital Markets analyst Kaan Peker said he views the ban as a "neutral event" and as "more of a negotiating tactic" by CMRG, aimed at securing lower long-term prices from the iron ore giant.
Peker noted that an estimated 11% of China's steel output would be at risk in the event of a long-term ban, making BHP's iron ore supply "structurally irreplaceable".
He said that any attempts by CMRG to offset BHP volumes via Fortescue, Rio Tinto, Vale, domestic ores, or stockpiles would be at higher cost and lower efficiency. The ban would also likely increase pricing power of BHP's competitors, who "know steel mills are desperate for feed", Peker said.
The sources: RBC Capital Markets research, Bloomberg
