Fortescue Metals Group Christmas Creek iron ore mine. Picture: REUTERS/JIM REGAN
Fortescue Metals Group Christmas Creek iron ore mine. Picture: REUTERS/JIM REGAN

The world’s biggest iron ore miners are looking for novel ways of satisfying their customers and protecting market share in the $150bn (about R2.2-trillion) global industry.

From selling through a mobile app to port-side sales, the likes of BHP, Rio Tinto and Vale are looking for an edge with buyers of the steel-making raw material in China, the top customer. The need to retain their business is becoming ever more critical amid forecasts that the market is around its peak.

“For miners, Chinese import volumes are basically not going to grow the way they used to,” said Tomas Gutierrez, analyst at Kallanish Commodities. “Any increase in value for iron ore will come from either adding service to mills or from cutting out the traders.”

Rio Tinto and rivals — who have spent more than a decade pumping billions into expansions to keep pace with China’s fast-rising appetite for iron ore — are now preparing for an era of slower growth and an eventual high point in the nation’s steel output.

They are introducing a range of initiatives to retain existing sales and add new customers — including selling directly from China’s ports in yuan instead of shipping cargoes from Australia or Brazil that are sold in dollars.

“Our China port-side customers will be able to order via a mobile app,” Rio Tinto’s chief commercial officer Simon Trott told an investor seminar in October. “You can order a few tonnes of ore, in the same way you’d place an order on Amazon.”

Rio Tinto has started port-side sales, while BHP also has been testing “spot sales during transport to China, as well as sales in smaller quantities with shorter lead times from bonded stockpiles in China,” Rod Dukino, vice-president for sales and marketing iron ore, said at a conference in September.

Large and medium steel mills in China generally support the miners’ new sales strategies

Selling at ports allows miners to blend different types of ore, and means “more money in the miners’ pockets”, according to UBS Group MD and global head of mining, Glyn Lawcock. “Over the past few years, we have seen  increasing sales to traders and now the miners are clawing back some of that lost margin, essentially.”

In particular, the use of the Chinese yuan is a breakthrough for an industry dominated by the dollar. For mills, this eliminates currency risks. For miners, this broadens their customer base and again cuts out the traders, said Lawcock.

In June, Fortescue Metals Group set up a sales office in China, offering direct supply of smaller volumes in the yuan. “This represents a new sales channel for Fortescue to complement our existing seaborne trade,” CEO Elizabeth Gaines said in an e-mail.

BHP sees “huge potential in the digitalisation of our post-trade processes across our portfolio, both for customers and suppliers alike, through increased visibility and traceability of goods”, Dukino said in an e-mail.

Large and medium steel mills in China generally support the miners’ new sales strategies, according to a survey by Bloomberg of five executives at mills and industry groups.

“As producers get closer to a diverse range of end customers, they understand their needs more, to facilitate an evolution in interaction and even digitalisation,” according to Andrew Glass, founder of Avatar Commodities and formerly head of iron ore financial trading at Anglo American Plc. Still, launching new sales channels also has its risks, and companies need to be mitigating them at the same time as extending their supply chain, Glass said.

The initiatives follow similar strategies adopted by Vale since 2015. The Brazilian miner, which is still grappling with the effects of a fatal dam disaster earlier this year, blends and sells from 16 ports in China. It also has a center in Malaysia, where ore can be stored and blended.

In the first for a foreign miner, Vale signed a deal with a Chinese steel mill based on prices of iron ore futures on the Dalian Commodity Exchange.

While Vale has had a headstart in sales efforts, Rio Tinto is catching up, according to Kallanish’s Gutierrez. “Now that the port stock market is more developed, and the sales mechanisms are developed, all the miners will need to compete in this area.”

Rio Tinto’s iron ore CEO Chris Salisbury said in a interview last week, “The enhancement of having things such as port stocks and port trade allows flexibility and smaller parcel deliveries to customers.” 

Bloomberg

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