China Suspends BHP Iron Ore Imports, Demands Yuan-Based Settlements

In a move that has reverberated across global financial markets, China has officially suspended purchases of iron ore from Australian mining giant BHP that are settled in US dollars. The decision, mandated by the state-owned China National Mineral Resources Group, applies to all domestic steel mills and includes shipments that have already been dispatched from Australian mines.

The immediate market reaction was severe. Following the announcement, BHP's US-listed shares fell sharply by 7%. Competitors Rio Tinto and Fortescue Metals Group (FMG) saw their shares decline by more than 4%. The Australian dollar also felt the impact, depreciating by 0.8% against the US dollar on the day.

The political response from Australia was swift. Within 24 hours, Australian Prime Minister Anthony Albanese issued a public statement, characterising China's decision as 'disappointing' and expressing a hope for a rapid return to normalised trade relations. China, however, did not immediately adjust its position.

This suspension marks a significant shift for China's steel industry, for which BHP iron ore has long been a preferred source. While appearing as a trade impasse, the move is reported to have broken a long-standing deadlock in China's bulk commodity transactions, with implications stretching far beyond immediate supply chains.

According to a Reuters report, Australia is now facing unprecedented pressure. As the supplier of 60% of China's iron ore imports, the nation is confronting the potential loss of its largest buyer for the first time.

Renminbi Settlement Emerges as Core Issue

Analysts indicate that this trade friction is the culmination of over a decade of contention between China and Australia regarding pricing authority for iron ore.

The immediate trigger was a dispute over price. BHP had insisted on a 15% increase for its 2025 long-term contract price, which would have raised it to approximately $109.5 per ton. This figure was substantially higher than the prevailing spot price of around $80 per ton. Acceptance of this terms would have increased annual costs for Chinese steel mills by an estimated $20 billion.

This cost pressure is untenable for the Chinese steel sector, where profit margins are consistently below 1%. Some companies, such as Chongqing Iron & Steel, are already operating at a loss and cannot absorb additional financial strain.

The pivotal aspect of China's suspension notice, however, was its explicit rejection of goods 'priced in US dollars'. This signals a strategic intent to gradually reduce reliance on the US dollar in commodity trade and to establish the renminbi as a more conventional settlement currency. This transition involves a fundamental transformation of the entire transaction ecosystem, encompassing bank financing, settlement systems, and exchange rate risk management.

Breakthrough: China Secures Pricing Authority with Renminbi Deal

The market situation evolved rapidly. Within a week, a major development emerged: BHP reached a significant agreement with China Minmetals Corporation Limited (CMMC) and several other Chinese steel manufacturers and traders.

Under the new agreement, effective from the fourth quarter of 2025, 30% of BHP's spot iron ore transactions with China will be settled in renminbi. Concurrently, it is understood that BHP has decided to establish an observation period for its 2026 long-term contracts, which will, for the time being, remain denominated in US dollars. This arrangement grants China a substantial foothold in iron ore pricing authority for the first time.