News Room - Steel Industry

Posted on 03 Jul 2009

China Aims to Settle Iron Ore Price by End-July

Chinese steelmakers, the world’s biggest, aim to conclude annual contract iron ore talks by the end of this month and may consider trimming their price cut demands, a company executive said.

 

“Some of the annual contracts, which ended June 30, still have a one-month grace period,” Tian Zhiping, vice president of Hebei Iron & Steel Group, said today in a phone interview. “The two sides should go on with the formal talks and settle the prices as soon as possible.”

 

The mills, who had demanded a cut of as much as 45 percent, are ready to discuss a reduction of between 33 and 40 percent, Caijing magazine reported yesterday. Rio Tinto Group, the world’s second-biggest exporter of the ore, is unlikely to budge from the 33 percent drop it agreed in May with Japanese steelmakers, said Umetal Research Institute analyst Hu Kai.

 

“Rio is more willing to sell to the spot market now because Chinese steelmakers have lost their credibility in honoring the long-term contracts,” said Shanghai-based Hu. “Some mills have started to buy ore at a provisional 33 percent price cut” level after cash prices rose, he said.

 

Cash prices have gained 20 percent to $78.20 a metric ton since Rio settled contract prices with Japanese steel mills on May 26, according to the Steel Business Briefing. This includes shipping costs of $17.75, according to the Baltic Dry Index. The contract price for the year to March 31 accepted by mills in Japan, Korea and Taiwan is about $61 a ton of ore from Australia.

 

‘Rio’s Stance’

 

“Whether we would agree to a cut less than 40 percent is dependent on Rio’s stance,” Hebei Steel’s Tian said. “It hasn’t offered a cut bigger than 33 percent. There also needs to be discussion on whether prices would be set on a half-year basis or on a quarter basis.”

 

Rio said June 30 that some contracts may revert to the spot market from the start of this month. “Rio Tinto has long been a supporter of the benchmark system but if customers choose to buy on the spot market instead they will,” Rio’s Perth-based spokesman Gervase Greene said.

 

Contract ore prices, effective from April 1, fell for the first time this year after rising for six straight years mainly because of Chinese demand. Mills, including Baosteel Group Corp, had delayed or cancelled contract shipments since September as slowing demand from automakers and builders forced them to trim production.