China to gain more control on ore pricing
The mainland will take control of iron ore pricing in the next two years as rising supplies of the steelmaking commodity return bargaining power to buyers, former Noble Group vice-chairman Harry Banga said.
Prices of the second-biggest seaborne commodity would fall to between US$95 and US$110 per tonne, said Banga, who started Caravel Group in May. The product traded at US$135.90 a tonne at Tianjin port on Monday.
Mine expansions by producers including Rio Tinto and BHP Billiton would push the market into a surplus next year, and the 82-million-tonne glut would be the most since at least 2008, Goldman Sachs said in August.
The shift in bargaining power might also spur an expansion of the iron ore securities market in Asia, Banga said.
"Buyers will be calling the shots," he said. "It will change very quickly over the next two years and the Chinese will then control more of the pricing."
Banga, who left Noble in January after stepping down from an executive role at Asia's largest commodity trader in 2010, started Caravel with his sons Angad and Guneet. Other than iron ore and shipping, the company planned to expand into trading of commodities including coal, manganese and nickel, he said.
Contract volumes for iron ore securities traded might potentially reach twice the size of the almost 1.2-billion-tonne physical market as a new generation of managers at mainland steelmakers would be more willing to use the contracts to hedge risks, Banga said.
Contracts traded on exchanges including the Singapore Exchange and the Dalian Commodity Exchange would account for 130 million to 150 million tonnes this year, he said.