BHP(US:BHP) Sou Hu Cai Jing·2025-10-13 04:51Core Insights - The iron ore trade market, valued at $1.2 trillion, is undergoing its most significant transformation in thirty years with a landmark agreement between China Mineral Resources Group and BHP to implement RMB settlement for iron ore spot trades starting in Q4 2025 [1][3]. Group 1: Transition from USD to RMB - The shift to RMB settlement marks a substantial advancement in China's pricing power for iron ore, which has historically been dominated by USD settlements, accounting for approximately 80% of the trade [3][4]. - BHP was the last major Australian mining company to refuse RMB settlement, but after China’s directive to halt USD-priced iron ore purchases, BHP quickly accepted the new terms [3][4]. Group 2: Pricing Power Dynamics - The competition for iron ore pricing power reflects a broader struggle for dominance in the global commodity trade system [4]. - The establishment of China Mineral Resources Group in 2022 has consolidated purchasing power for state-owned steel enterprises, enabling more effective negotiations against BHP's proposed price increases [5]. Group 3: RMB Internationalization Milestone - The agreement is a strategic milestone for the internationalization of the RMB, with other companies like Vale and Fortescue Metals Group also agreeing to RMB settlements [6][10]. - The Cross-Border Interbank Payment System (CIPS) has demonstrated its capability for global commodity settlements, processing RMB payments amounting to 134.5 trillion yuan in 2023 [6]. Group 4: Strategic Supply Diversification - China's diversified supply strategy, including the upcoming Simandou iron ore project in Guinea, is expected to significantly enhance its bargaining power in iron ore pricing [10]. - The project, with a capacity of 120 million tons per year, could account for 10% of China's annual iron ore imports upon completion [10]. Group 5: Global Implications - The shift to RMB settlement could reduce trade costs for Australia by approximately 1.5 billion AUD annually, given that iron ore constitutes 62% of its exports to China [11]. - The transformation is also impacting other countries, with Russia increasing iron ore exports to China by 80%, 45% of which are settled in RMB [11][13]. - By 2025, the proportion of global commodity transactions settled in RMB is projected to reach 18%, a significant increase from 5% in 2022 [13].