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China is likely to reduce the amount of iron ore it buys from Iran from March due to concerns that sanctions may disrupt exports valued at more than $2 billion a year to the world’s largest consumer of the raw material, traders said on Wednesday.

Iran is a political ally of China and one of its biggest crude oil suppliers. Iran was also China’s fifth-biggest supplier of iron ore in 2011, selling some 17 million metric tons, but traders said they expected purchases to shrink in coming months as sanctions disrupt shipments and payments.

“There is a huge risk ahead, and many just haven’t realized it yet,” said a senior executive at a Shanghai-based trading firm that has a long-term partnership with an Iranian supplier. “It’s easy for the United States to freeze our business, forcing large Chinese iron ore traders, which have large trading volumes with Iran, to be more cautious when making bookings. It’s not worth taking the risk.”

Although Iranian ore accounted for 2.4 percent of China’s total 686 million ton imports in 2011, its absence will push up prices as it scrambles for alternative supplies of the raw material used to make steel.

Chinese buyers usually pay Iranian suppliers via a representative office set up in Dubai, in the United Arab Emirate, or in other countries. The money is then transferred from banks in those countries to Tehran. The Shanghai-based trader, who requested anonymity, said the United States would find it easy to trace payments made by major trading firms to Iran. An iron ore buyer based in eastern China’s Shandong province said some of his Iranian suppliers had rushed shipments, a sign that they too were worried about potential payment problems. 

Reuters