News Room - Steel Industry

Posted on 09 Feb 2010

China CISA Defends Role In Tough Iron Ore Price Talks

China's steel industry officials Tuesday mounted a defense of their role in conducting tough negotiations with global miners over iron ore term prices, attacking "the monopolistic nature" of iron ore suppliers and blaming the local media for "focusing the country's attention on the price talks."

 

Talks between China and mining companies Rio Tinto Ltd. (RIO.AU), BHP Billiton Ltd. (BHP: 67.93, 0, 0%) and Vale S.A. (VALE: 25.19, 0, 0%) collapsed without a result last year as China held out for a deeper price cut than what miners had settled with their Japanese and Korean customers.

 

The arrest of four Rio Tinto employees on charges of commercial spying and bribery also complicated negotiations last year.

 

While refusing to divulge details of the progress of talks this year, China Iron and Steel Association Vice Chairman Luo Bingsheng said China had been right to hold out for a deeper price cut last year.

 

"You all seem to have missed an important figure," he told reporters on the sidelines of a CISA press conference. "In 2009, China's steel mills' expenditure on iron ore imports decreased 34% or more compared to 2008. According to their price, it would have been only 30%."

 

Luo declined to elaborate what he meant, but the suggestion appeared to be that Chinese mills ended up getting a better deal without the benchmark deal.

 

However, the back-of-the-envelope calculation didn't take into account other factors such as the fact that the comparison was between two different time periods - the benchmark deal runs from April 1 to March 31, compared to the 2009 calendar-year measure that Luo used - or that last year's spot prices were weighed down by a global recession. Also, he appeared to have summarily averaged discounts offered by the three miners, since the Australians offered about 33% and Brazil's Vale offered about 28%.

 

At the news conference, CISA officials turned their fire on the "monopolistic nature" of the mining industry.

 

"Everybody should be able to see this," Luo said. "The two of them (BHP and Rio) getting together would add to the monopoly."

 

Rio Tinto and BHP are working on a plan to combine their iron ore operations in the Pilbara region of Western Australia state, a prospect that China fears would give the producers even greater sway in influencing the price of iron ore, a critical resource for steelmaking, and therefore construction and development.

 

But Luo acknowledged China's "excessive" iron ore imports were partly to blame for what he called "chaotic trade." China's iron ore imports out-paced demand by 86 million metric tons in 2009, he said.

 

Surplus imports caused pressure and congestion at ports, high inventories for steel mills, and high shipping costs, which in turn pushed up iron ore prices, the association said in a statement issued at the press briefing.

 

China must control imports as excessive buying would affect price negotiations, he said.

 

Moderating import levels by controlling import licenses has been a stated goal for the Chinese government.

 

At the press briefing, CISA briefly revisited another often-repeated demand for a "unified price" for iron ore imports.

 

"China must push for a unified ore import price (this year)," Luo said, repeating the call for a single price for all imports, eliminating the vagaries of the spot market.

 

The association's honorary chairman, Wu Xichun, went further, saying that miners were "bullying" China by allowing iron ore to enter the country with two prices: the fluctuating spot rate and a fixed benchmark price for bulk purchases.

 

Both officials refused to comment on the status of ongoing price negotiations this year.

 

"There is no point in making this an issue for national attention," Wu said. "We will not comment on the ore talks as they proceed."

 

Wu, who ordinarily doesn't join such press briefings, spent some 45 minutes Tuesday blaming the media for "offering suggestions" on iron ore price talks and singling out local press reports and headlines that had drawn his ire.

 

Asked when talks would conclude, Luo would only say price talks are a commercial matter where negotiators must abide by confidentiality rules. "I wish they would end tomorrow," he said.