News Room - Steel Industry

Posted on 13 Feb 2009

China Wants Bigger Ore Price Cuts From BHP Than Vale

China, the world’s largest buyer of iron ore, will demand a bigger cut in prices from BHP Billiton Ltd. and Rio Tinto Group than from Brazil’s Cia. Vale do Rio Doce after shipping costs plunged, the nation’s steel association said.

 

BHP and Rio almost doubled prices for their ore from Australia last year, exceeding the 71 percent gain Vale won because it was cheaper to ship the material to China from Australia than from Brazil.

 

“There’s no equalization if Australian and Brazilian ores get the same cuts,” Shan Shanghua, secretary general of the China Iron and Steel Association, said in an interview from Beijing late yesterday. “That’s unacceptable.”

 

Chinese steelmakers are pushing for the first reduction in seven years for benchmark contract iron ore prices as the global recession crimps demand from carmakers and builders. Prices for Australian iron ore may fall at least twice as much as those sold by Vale, Credit Suisse Group AG said this week.

 

“There’s speculation China wants the prices to move back to 2007 levels, which means BHP and Rio should give up the freight compensation they enjoyed last year,” said Du Wei, head of iron ore research at Umetal Research Center. “It’s reasonable as the freight difference has been narrowed.”

 

Shipping ore costs about $55 a metric ton less from Australia than Brazil last June when Chinese steelmakers agreed to pay BHP and Rio a higher price. The difference has slumped to $13.6 a ton yesterday on the Baltic Dry Index.

 

Australian Fines

 

The contract price for Brazilian iron-ore fines may be unchanged or fall no more than 9 percent, while Australian fines may drop 20 percent, Credit Suisse’s Roger Downey said.

 

Chinese steelmakers paid as much as $127 a ton for benchmark iron ore lumps from Australia.

 

Talks to settle 2009 benchmark contract prices started last month between producers and Chinese steelmakers.

 

Rio Tinto and Melbourne-based BHP Billiton are the two largest suppliers of iron ore from Australian mines. With Vale, they account for three-quarters of trade in the steelmaking ingredient. China buys about half of the world’s seaborne iron ore, London-based Rio said yesterday.

 

“The entire iron ore market is turning around this year,” Shan said. “China and global steel output will fall this year.”

 

Chinese steelmakers are also negotiating a change to the format of the price talks, Shan said. Steelmakers want to negotiate every six months rather than on an annual basis, he said. Mining companies agree in principle to more frequent price setting, though no accord has been reached, he said.

 

China’s steel output, which rose 1.1 percent to 500.5 million tons last year, may fall this year because of slowing global demand, Shan said, without giving a forecast. The nation exported 54 percent less steel products in January from a year earlier.