Brazil's Vale is cooperating with China’s Qingdao Harbour on setting up a physical iron ore distribution centre around the Dangjiaer Harbour area, according to the local Economy Management Committee. The move is part of Vale's attempts to further reduce its disadvantage in distance compared to Australian mines, Kallanish notes.

“It is equivalent to starting an iron ore spot market in China. Compared with the previous one-to-two month shipment cycle for steel mills, they can get their goods immediately like a supermarket straight after the payment,” says Qingdao Harbour.

Earlier in the year Qingdao Harbour announced a CNY 26 million ($3.96m) iron ore blending base investment scheme. This will support the blending of up to five types of ores at the same time with weight control accuracy within 0.3%. Dangjiakou Harbour says that with high-Fe content iron ore supply from Vale, they can easily customise their iron ore products to match the needs of domestic mills.

Sun Bo, the deputy manager of Qingdao Harbour/Dongjiakou Harbour Ores Dock Company, says soon they will have the use of a railway helping increase ore transportation capacity by 15 -20 million tonnes/year. The aim is to build up a North-East Asia iron ore trading centre with bonded areas, and hedging, ore blending and distribution functions.

Vale had previously been in talks with Fortescue Metal Goods about creating joint blending centres in China. The significant discount that FMG's lower grade ore is currently earning has made it difficult to agree terms for such an alliance, Kallanish notes.