The iron ore price outlook may be darkening with China's latest plans for the commodity.
It has already been a tricky couple of weeks for iron ore as the price has dropped more than US$10 per tonne over the last 10 or so days.
The Australian Financial Review reported that, "China's state planner and the market regulator told some iron ore traders to release excess inventory and reduce stocks to reasonable levels following a joint investigation in Qingdao, one of the country's largest iron ore ports."
But there's more potential change on the cards.
China's platform plans to control the iron ore price
According to reporting by Bloomberg Quint, China wants to regain control of iron ore prices through a centralised purchasing model where all transactions have to be done through a single state-backed platform.
Under current laws, Chinese businesses, such as steel producers, can make their purchases independently.
It's claimed this proposed platform aims to increase China's ability to influence the price of commodities.
According to Bloomberg Quint, Chinese officials are aiming to limit inflation with possible upcoming stimulus measures that may lead to higher steel demand.
It wouldn't be unique
Iron ore wouldn't be the only commodity subject to centralised negotiations if the plan goes ahead. There is reportedly a group of leading copper smelters in China that already access their annual supplies under such a scheme. Reports suggest a similar platform could be difficult given how many iron ore buyers may be involved.
Other tactics to control the iron ore price
Bloomberg Quint also referred to some other strategies that China may pursue to control and reduce the iron ore price. The government wants the big steelmakers to become larger by making corporate deals through acquisitions or mergers. Other ideas include boosting domestic output and buying stakes in mines outside China.
Which ASX mining shares could this impact?
Time will tell how this impacts the ASX miners.
But there are some significant iron ore mining businesses on the ASX, including BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG), and Mineral Resources Limited (ASX: MIN).
As commodity businesses, the price of iron ore can have a major impact on the movements of share prices and the profit-making potential of each company. Will each of those miners have to use that new platform? And, of course, it remains to be seen what the cost of using that platform might be.
