News Room - Steel Industry

Posted on 08 Jun 2010

Rio, BHP seek further Japan ore price hikes

Rio Tinto Ltd and BHP Billiton Ltd have notified Japan's steelmakers that they want to raise iron ore prices by 22-23 percent in July-September from the previous quarter, a source said, sending shares of Japanese mills to lows for the year.

 

Such a price rise to about $147 a tonne -- roughly in line with the recent spot market trend -- would be a further blow to Japanese mills, whose shares are reeling amid worries about the global economy and the outlook for demand as well as weaker steel prices in Asia, their biggest export market.

 

"There's nothing but bad news," said Credit Suisse analyst Shinya Yamada. "Investors are fretting about a possible squeeze in margins at steelmills as product prices could sag while raw materials prices stay at a high level."

 

Shares of Nippon Steel, the world's second-biggest steelmaker, fell 1 percent to an eight-month low of 303 yen. JFE Holdings Inc, the world's No.6 mill, lost 1.1 percent to a seven-month low of 2,860 yen. The broader market .N225 rose 0.2 percent.

 

The price hike, the second consecutive quarterly increase, would make the July-September iron ore price more than double the price for the 2009 financial year, and follows Japanese steelmakers' agreement with BHP to raise the coking coal price for the quarter by 75 percent from a year earlier.

 

Japanese mills have yet to agree to the request from Rio and BHP, the world's second- and third-biggest iron ore miners, respectively, the source said.

 

But the Japanese companies, who earlier this year agreed to replace the annual benchmark with an index-based mechanism and change prices every three months, are likely to settle for a price close to the proposed figure.

 

The average cost-freight price of Indian ore landed in China was $155 a tonne .IO62-CNI=SI in March through May, up nearly 30 percent from the previous three months.

 

Brazil's Vale SA, the world's biggest iron ore producer, said this month it had already set contract iron ore prices for the quarter and offered them to its customers.

 

MARGIN SQUEEZE?

 

Fears of a spreading European sovereign debt crisis and a slowdown in the Chinese economy are weighing on Asia's steel prices, leading investors to worry that steelmakers may not be able to push through price hikes large enough to offset rises in material costs.

 

Asia's steel market has been sagging since hitting a high in the middle of April, with prices of billets in the Far East falling 20 percent in the past three months [.FFDc3].

 

China's Baoshan Iron and Steel this month cut prices of hot-rolled products by about 10 percent for July, the first cut since last November.

 

On the other hand, JFE Steel said last month it was seeking to raise export prices for the July-September quarter by 10-20 percent, citing relatively solid demand for high-end flat steel used in cars and electronics and which is in short supply in Asia.

 

At home, Nippon Steel and Toyota Motor Corp are in the final stages of talks to raise high-end auto-sheet prices by 20,000 yen per tonne, or 25 percent, for the April-September period, media said.

 

Toyota may accept the 20,000 yen hike, media said, but Credit Suisse's Yamada said is not enough to enable Japanese mills to maintain margins given rising freight and other costs. ($1=91.91 Yen)