News Room - Steel Industry

Posted on 05 Mar 2009

Chinese Steelmakers Want Iron Ore Price Cut by 50%

Chinese steelmakers, the largest buyer of iron ore, want Cia. Vale do Rio Doce, BHP Billiton Ltd. and Rio Tinto Group to cut prices of the material by between 40 percent and 50 percent this year, Anshan Iron & Steel Group said.

 

“The 40 to 50 percent cut is a (demand) consensus reached by both domestic and international steelmakers,” Anshan President Zhang Xiaogang said in an interview in Beijing today. “I think it’s reachable.” Anshan is China’s second-largest mill.

 

Chinese steelmakers are pressing for the first iron ore price cut in seven years as the global recession crimped demand from carmakers and builders, resulting in losses for more than 60 percent of the mills in the country. Annual price talks are taking place between mining companies and mills.

 

“We don’t have excessive iron ore stockpiles,” Zhang said. “We are waiting for the negotiation results. We had a profit in the first two months. But it’s very small.”

 

Vale, BHP and Rio account for about three-quarters of seaborne trade in iron ore. China buys about half of the shipped material. Anshan is based in Liaoning province.

 

Contract prices may fall “between 15 and 20 percent,” said James Wilson, a resources analyst at DJ Carmichael & Co. “There is a lot of game playing going on. If they settled at today’s spot price that would be about a 14 percent decline.”

 

Price Discounts

 

BHP Billiton and Rio Tinto, the world’s largest and third- biggest mining companies, have offered Chinese customers price discounts to keep buying iron ore, said Shougang Corp.’s Chairman Zhu Jimin. Mills have cut back on purchases and are using inventories rather than buying discounted material, he said.

 

The two iron ore producers have offered to sell the material at spot prices, which are lower than benchmark contracted prices, until new benchmarks for the year are decided, he said, while attending the same conference. Beijing-based Shougang is China’s eighth-largest mill.

 

India’s iron-ore exports in March will slump because of reduced Chinese purchases, the Federation of Indian Mineral Industries said yesterday. Prices of Indian iron ore, sold on the spot market, have fallen by $15 a ton from $85 a ton in February, the group said. Benchmark Australian iron ore prices are at about $91 a ton.

 

Melbourne-based BHP spokeswoman Kelly Quirke declined to comment. Perth-based Rio Tinto spokesman Gervase Greene also declined to comment.

 

Vale, Rio and BHP “haven’t decided” on what prices they want to offer for the new long-term contracts, Shougang’s Zhu said.

 

Benchmark steel prices in China have fallen by 13 percent from February after mills increased output on expectation of demand coming from the government’s 4 trillion yuan ($585 billion) stimulus package.

 

Prices have dropped below output costs and mills may cut production by 20 percent because of the “current demand situation,” Shougang’s Zhu said.