China’s yuan gains foothold in iron ore deals, could increase Chinese self-reliance, analysts say
- Australia’s Rio Tinto, BHP Group and Fortescue Metals, as well as Brazil’s Vale, recorded their first yuan-denominated transactions in China in the last year
- More yuan-prices transactions will increase the internationalisation of the Chinese currency and also help the economy in line with the new ‘dual circulation’ strategy
Iron ore miners‘ and steel producers’ increasing use of the Chinese yuan will increase its internationalisation, reduce China’s vulnerability to any possible US financial sanctions, and help the domestic economy in line with the new “dual circulation” strategy.
Using the yuan for domestic sales will also reduce volatility in iron ore prices and improve the resilience of the domestic economy, in line with the government’s new “dual circulation” strategy, analysts added.
“This will enable Chinese steel mills to have a bigger say in iron ore pricing. Chinese steel mills will be able to minimise their exchange rate risks, as the vast majority of steel they produce is consumed in China,” MySteel senior analyst Li Hongmei said.
“This will also help China internationalise its [yuan-denominated] iron ore derivative contracts on the Dalian Commodity Exchange.”
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Rio Tinto and Vale, as well as rival Australian iron ore giants BHP Group and Fortescue Metals, have all confirmed they recorded their first yuan-denominated iron ore transactions in China in the last 12 months.
In October 2019, Rio Tinto agreed to be paid in yuan for a shipment to a steel mill in northern China’s Shanxi province, while in November, Vale struck its first yuan-denominated sale with the trading arm of Shandong Laigang Yongfeng Steel. It also agreed other yuan-priced deals with China Baowu Group and Hesteel earlier this year.