BHP(US:BHP) Sou Hu Cai Jing·2025-10-07 18:16Core Viewpoint - BHP, the Australian iron ore giant, has been officially "cut off" by China, with all state-owned steel mills instructed to suspend purchases of BHP's iron ore priced in USD, leading to a significant drop in BHP's stock price and market value [1][3]. Group 1: BHP's Pricing Strategy - Despite a global decline in iron ore prices, BHP insisted on a long-term contract price of $109.5 per ton, which is nearly 15% higher than the market price of around $80 per ton [3]. - If this pricing strategy were to be accepted, it would result in an additional cost of over $20 billion for Chinese steel companies, given that China imported 740 million tons of iron ore from Australia last year [3]. Group 2: China's Response and Strategy - China has established the China Mineral Resources Group to unify procurement from hundreds of steel companies, allowing for a stronger negotiating position against BHP [7][9]. - China's diversification of iron ore sources has reduced Australia's share of imports from a peak of 62% to 51%, with significant contributions from Brazil and Guinea [11]. - The Chinese government has made it clear that future business with BHP will require pricing at market rates and settlement in RMB, not USD [11][16]. Group 3: Economic Implications for Australia - Approximately 85% of Australia's iron ore exports go to China, and a 10% reduction in Chinese purchases could lead to a 1.2% decline in Australia's GDP [13][14]. - Australian Prime Minister Albanese's initial disappointment reflects the critical importance of the iron ore trade to both nations, as no other country can absorb Australia's iron ore exports at the same scale [14]. Group 4: Shift in Market Dynamics - The iron ore pricing and trading dynamics are shifting, with Chinese futures markets gaining prominence, indicating a transfer of pricing power from Australia to China [16]. - The potential for RMB to become a settlement currency in commodity trading poses a significant challenge to the dominance of the USD, which could have severe implications for the US economy [16][19].