China's Iron Ore Buyers Prefer Quality Checks

Despite the initiative by China's General Administration of Customs (GACC) to make imported iron ore quality check optional starting June 1, most of the Chinese buyers including traders and steelmakers expressed their willingness to go through the hassle so as to minimize risks and to save costs too in the end.

Starting June 1, only upon the request of the iron ore buyers that GACC will conduct the on-site sampling, laboratory testing, and issue quality certificates regarding the ferrous content, silica, aluminum, phosphorus, moisture, and particle sizes, Mysteel Global understands.

A trader from Tianjin, North China, however, still prefers a quality check report upon receiving the iron ore delivery, as it may save costs.

"We usually finalize the payment of our imported iron ore by averaging the key specifications in the seller's and our quality reports, as many times the grade specified in the seller's report tends to be higher," he said, adding that variation usually lies in the ferrous content and moisture, which are key elements in calculating the final prices.

Moisture tends to increase during the journey, so variation upon loading and arrival is rather common, a Shanghai-based analyst shared.

China's iron ore imports volume has peaked at over 1 billion tonnes since 2018, and for 2019, the country imported 1.07 billion tonnes of iron ore, or up 0.5% on year, leading to rather a heavy workload, market sources acknowledged.

An official from a steel mill in Tangshan, North China's Hebei province, said that they have not tested the new Customs clearance procedure or received a detailed guideline to do so, but he shared that the omission of the quality inspection upon arrival may lead to higher iron ore procurement costs.

"Even if the sellers are big miners in Australia and Brazil, the specifications of the ore may vary in two reports," he shared.

GACC did remind the buyers or agents of the risks of monetary losses or trade disputes regarding quality discrepancy should they opt to honour sellers' quality certification instead of conducting their own when receiving the deliveries, according to a post on the GACC website on June 1.

Without the quality checks, the conclusion of an iron ore import deal with the full payment will be way faster than the usual practice that can last 60 days, a Singapore-based market source said.

"Of course, this will rely on the credit of the seller, the business relationship between the buyer and the seller, and market recognition of certain iron ore supplies," she added.

The mill official acknowledged the benefit of saving the time, but they will continue with the original practice, and many other Chinese steel mills will "do the same", arguing that "it has not been too troublesome anyway".

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.