BHP(US:BHP) Sou Hu Cai Jing·2025-10-17 08:52Core Viewpoint - The announcement by BHP to allow iron ore transactions with China to be settled in RMB marks a significant shift in the power dynamics of the iron ore market, giving China more control after two decades of being at a disadvantage [2][21][30]. Group 1: Market Dynamics - China accounts for 70% of global iron ore purchases, yet historically, it has been at a disadvantage in negotiations, often paying inflated prices due to a lack of pricing power [5][19]. - The pricing system, primarily based on the Platts index, has been criticized for being manipulated by major financial institutions that also hold stakes in BHP, leading to unfair pricing practices [7][11]. - The reliance on USD for transactions has subjected Chinese companies to currency fluctuations, resulting in additional financial burdens [9][19]. Group 2: Strategic Developments - China has been strategically restructuring its approach to iron ore procurement by consolidating purchasing power through the establishment of the China Mineral Resources Group, which unifies the demands of steel mills [13][19]. - New sources of iron ore, such as the Simandou project in Guinea, are set to significantly reduce dependence on Australian iron ore, with production expected to reach 12 million tons annually [15][19]. - The market share of Australian iron ore in China has decreased from 65% to 52%, indicating a diversification of supply sources [15][19]. Group 3: Future Implications - The shift to RMB settlements is expected to create a closed-loop system where Australian companies can use RMB to purchase Chinese goods, enhancing the international use of the currency [23][25]. - The establishment of a new pricing index based on real transaction prices in China is anticipated to restore pricing power to Chinese buyers [26][30]. - This development could serve as a template for other commodities, potentially leading to a broader shift away from USD dominance in global trade [28][30].