China iron ore trading platform considers deposits to cut default risk

China’s biggest physical iron ore trading platform is considering collecting deposits from market members including miners and steelmakers to curb the risk of them defaulting amid volatile prices, its president said.

Prices for the steelmaking ingredient have been ping-ponging over the last few months, increasing the chances that some buyers or sellers could walk away from deals agreed at levels they consider relatively unfavourable.

Rebounding to US$65 a tonne in June from below US$47 in April, the glut-hit commodity slid to a decade-low of US$44 in July before recovering to around US$56 currently.

"A dispute occurred when one party tried to cancel a sale or purchase after the transaction was concluded on the platform. We think it’s normal because it happens in traditional trade as well," said You Song, president of the Beijing Iron Ore Trading Center. He did not give more details, but said there had been a few disputes.

"That’s why we are going to introduce the standard contract and why we are going to collect deposits from members," You said, adding that change would only be implemented after consulting with members.

The move could differentiate the platform, also known as COREX, as it competes with Singapore-based globalORE – the world’s largest platform for spot iron ore cargoes – which does not require deposits from members. Although the additional cost of providing deposits could weigh on some firms.