China, the world's largest iron ore consumer, buys about 75 per cent of global seaborne iron ore and set up China Mineral Resources Group (CMRG) three years ago to buy ore on behalf of its steelmakers to gain more leverage as a large, single buyer.
BHP, meanwhile, is the world's largest listed miner and China's third-biggest supplier behind Rio Tinto and Vale.
CMRG did not respond immediately to an emailed request for comment and a BHP spokesperson said the company does not comment on commercial negotiations.
"While headlines read negative, we view this as a neutral event," RBC analysts said in a note.
"We view this 'ban' as more of a negotiating tactic, most likely an effort to secure lower long-term prices."
If steel mills were pushed to buy iron ore from rivals such as Rio Tinto, Vale or Fortescue, cumulatively, it would cost them more and be less efficient, said RBC, adding that it would also be likely to increase miners' pricing power as steel mills compete for feedstock.
A trading source said the directive will cause little inconvenience to Chinese mills in the short term because they have already stocked up for the next two weeks ahead of looming public holidays.
BHP said in August that it would cut exploration spending after annual profit fell to its lowest in five years as slowing Chinese demand weighed on iron ore prices.
