China is stepping up pressure on Fortescue amid a dispute over the terms of ore supplies

The state-owned buyer China Mineral Resources Group (CMRG) has stepped up pressure on mining company Fortescue in recent weeks after negotiations on a supply deal reached an impasse, according to Bloomberg.

According to sources, CMRG has been coordinating efforts with traders, steel mills and port operators to delay Fortescue’s shipments, restrict certain products and prevent new purchases. The state-owned buyer is employing tactics similar to those used against BHP.

However, the faster escalation compared with the BHP case suggests that CMRG is no longer experimenting with its negotiation strategy and will follow a specific script, the agency notes. This could mean blocking a larger volume of Fortescue’s products.

The parties cannot agree on whether to maintain the commercial terms agreed directly between the mining company and individual steelworks. According to sources, China Mineral Resources Group asked Fortescue to maintain the discounts it had been offering to certain plants once purchases were redirected via the state-owned company to other consumer enterprises. At the same time, the Chinese state-owned buyer is seeking greater price concessions.

Fortescue has rejected the proposal. The company justifies this by stating that certain terms are based on relationships built with individual clients and should not automatically be transferred to the new system.

Fortescue is currently the fourth-largest supplier of iron ore to China. The country is seeking to rewrite the rules regarding imports of this raw material, which exceed 1 billion tonnes per year.

According to sources, the Australian mining company has not yet shown any willingness to alter the agreements, partly due to its confidence in demand for its flagship product – Super Special Fines – a cheaper, lower-grade raw material suitable for cost-conscious customers. However, this product is subject to restrictions imposed by the CMRG.

Furthermore, Andrew Forrest, the founder of Fortescue and currently the company’s executive chairman, has previously criticised CMRG.

It should be recalled that in early July, China Mineral Resources Group informed steelworks and traders of plans to restrict access to certain stocks of Fortescue’s iron ore held in Chinese ports – specifically the Super Special Fines grade.

In early June, CMRG instructed certain steelworks that consume significant volumes of raw materials from Fortescue to approach the supplier with an enquiry regarding its new lower-grade product, Fortune Fines (with an iron content of 55 per cent). These actions were prompted by complications in the negotiations between the parties.