China Said to Scrap Iron Ore Import Licence System

 
China plans to scrap its decade-old iron ore import licensing system this year, an industry source said on June 13, 2013, a move that may further lift imports in a market that takes two-thirds of the world's international iron ore trade.

The move could also cut costs for domestic steel mills by eliminating licensed middlemen charging commissions for imports.

It could also mark the end of years of efforts by China to strictly regulate the trade due to worry over its growing dependence on imports and in an effort to wrest pricing power away from big miners such as Rio Tinto and Vale .

"China will open up its iron ore trade from the second half of the year," said the source, with direct knowledge of the matter, who declined to be named as he was not authorised to speak to the media.

"Import qualification licences will no longer be required in order to make the industry more market-oriented and give steel mills more choices," the source added.

China imported a record 743 million tonnes of iron ore in 2012, up 8 percent from the prior year.

Iron ore traders will need only the same routine licences that are issued to other importers and will no longer need approval by government-backed industry bodies such as the China Iron and Steel Association (CISA).

The licensing system was part of China's efforts to make the iron ore industry speak with "one voice" when dealing with major foreign suppliers.

The system was also meant to exclude unlicensed traders who were blamed for driving up prices through speculative buying.

That campaign proved counterproductive, however, instead creating a grey market for middlemen to rent out their permits.

"I don't see any immediate impact on market prices now, but many steel mills would not need to pay extra agent fees to licensed importers for getting the raw material, which would help them reduce cost," an iron ore trader in Beijing said.

"At some point, this may be good news for miners as more buyers could help support iron ore prices and higher flow of imported raw materials may also bring pressure on domestic miners," he added.

CISA and the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters (CCCMC), a unit that helps regulate iron ore trade on behalf of the Ministry of Commerce, worked together to issue licences to importers.

No one at CISA or CCCMC were available to comment.

"Some traders that held licences made a huge profit by selling imported iron ore to those unlicensed buyers over the past few years and the move means that they might lose the advantage," said an iron ore trader in Shanghai.

China has been trying to reduce government interference in the workings of the market, with its new leaders also seeking to streamline approvals procedures to rejuvenate the country's slowing economy and promote economic reform.