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A miner paid in yuan has a reason to borrow in yuan, and a miner indebted in yuan has a reason to price in it.
In April, BHP ended a seven-month standoff with its largest customer. China Mineral Resources Group, the state-backed entity that consolidates iron ore purchases for Chinese steel mills, had partially shut the Australian miner out of China since September.
As the price of readmission, Chinese media reported, BHP agreed to rewrite the pricing formula for Jimblebar fines, a product line that accounts for roughly a quarter of its output from the Pilbara region of Western Australia. For the first time, a yuan-denominated Chinese port index will anchor 51 percent of the formula, with the traditional S&P Global Platts benchmark removed entirely. The contract may still convert that reference price into dollars, but the shift is significant; Beijing has inserted its own benchmark into the machinery of global commodity pricing.
No major iron ore producer had previously allowed a yuan-denominated Chinese benchmark to anchor most of a long-term pricing formula. In that regard, the deal may matter more for China’s currency ambitions than the payments statistics that usually frame the debate.
