News Room - Steel Industry

Posted on 24 Apr 2008

China May Gain From Long Ore Talks With Aussie Miners - Assoc

Chinese steel mills might be able to benefit from prolonged negotiations with Australian iron ore miners, as prices of both domestic ores and imports have been falling, an industry official said Thursday.

The average domestic iron ore price fell in March by CNY100 ($14.31) per metric ton from the previous month, while the average cost, insurance and freight import price was down $4/ton, said Zou Jian, vice chairman of Metallurgical Mines' Association of China.

"If the negotiations can continue for another month, the situation will be even more advantageous to us, as FMG ores will further increase the supply," Zou said on the sidelines of a steel industry forum, speaking of shipments expected from Fortescue Metals Group Ltd. (FMG.AU).

Chinese steel mills, led by Baosteel Group Corp., are still talking with BHP Billiton Ltd. (BHP) and Rio Tinto PLC. (RTP) on long-term contract prices for the year starting April 1.

Market talk is going around that the Australian miners have been asking for a more than 80% price increase to factor in a "freight premium."

This isn't in line with standard practice, as in the past once any of the three major miners reached an agreement with any steel mill worldwide, the other two would usually move quickly to settle prices in line with the benchmark price change.

China's largest steel producer by output, which is the parent of Shanghai- listed Baoshan Iron & Steel Co. (600019.SH), and Brazilian miner Companhia Vale do Rio Doce (RIO), or Vale, in late February agreed on price hikes depending on ore qualities of 65% and 71%.

Zou said in a speech at the forum that the first seaborne cargo of iron ore from FMG is expected to arrive at China in a month, which will probably result in an even lower price of ores.

Industry officials and analysts said that as Chinese steel mills are now short of cash, following official tightening measures to slow the rapidly expanding economy, high levels of iron ore stockpiles at the ports and the very limited upside expected for steel products imply that iron ore prices are likely to fall slightly from current high levels.

However, Chinese steel mills and Australian miners are expected to conclude the talks by the end of June, as a further delay would allow miners to sell more ore at spot rates, leading to even higher production costs for steel mills.