Investing.com -- A deepening pricing dispute between BHP and China’s state-backed iron ore buying group has raised questions over how vulnerable the miner is to even a temporary disruption in its biggest market.

China Mineral Resources Group, which represents more than half of China’s steel industry in iron ore contract talks, has reportedly told domestic mills to halt purchases of BHP’s ore after negotiations over pricing adjustments broke down. 

The dispute is said to centre on how grade and impurity adjustments are calculated in long-term contracts.

If directives enforced broadly it would affect shipments of BHP’s Jimblebar fines which is roughly 20% of its sales mix, according to UBS. 

Australian Prime Minister Anthony Albanese has urged both sides to resolve the dispute quickly.

China accounts for about 85% of BHP’s Pilbara shipments, a higher reliance than previously assumed and greater than Rio Tinto at 79%. 

While year-to-date shipments are only down about 1%, BHP’s exports softened in August and September and its market share of Australian cargoes arriving in China has fallen from 32% to 26% in the past six weeks.

Some of that weakness could be explained by scheduled maintenance. But UBS warned that if a formal ban is imposed and Chinese mills strictly avoid BHP cargoes, the miner may struggle to quickly redirect volumes to other buyers given its heavy dependence on China.

UBS analyst expects any disruption to be temporary, saying that China would also have to scramble for replacement supply, likely driving up prices for rival brands such as Brazil’s Vale or fellow Pilbara producers. 

As seen during China’s informal ban on Australian coal several years ago, trade could eventually rebalance, but not without friction or price volatility.

For now, UBS says shipment data suggests only modest impact. But with China on holiday for Golden Week and voyage times of around 12 days from Australia, the full extent may not show up until mid-October.

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