BEIJING - After
a stunning 71.5% hike in iron ore prices last year
pushed nearly 40% China's steelmakers into the
red, the Chinese steel industry is attempting to
negotiate with ore producers to achieve lower
prices for the 2006-7 contract year, which begins
on April 1.
Industry officials are
predicting lower prices, but negotiations with the
world's three major ore suppliers have been
difficult.
Prices should
fall After last year's 71.5% hike, the
price of imported iron ore should go down this
year, given that supply and demand around the world
are
generally balanced and supply may even exceed
demand, Luo Bingsheng, president of the China Iron
and Steel Industry Association, told Xinhua at the
on-going session of the Chinese People's Political
Consultative Conference (CPPCC). Luo is also a
CPPCC member.
As the world's largest iron
ore consumer, China is talking with the world's
major three iron ore suppliers, Australia's BHP
Billiton Ltd, Rio Tinto Group and Brazil's
Companhia Vale do Rio Doce, on the price of iron
ore to be imported this year, but negotiations
have been very tough due to different views.
Luo also pointed out that it was not
unreasonable to take the advice of Chinese iron
and steel enterprises into consideration in the
negotiations, and that the current high prices
were unacceptable for Chinese enterprises, which
imported 275 million tons of iron ore last year,
accounting for 43% of the world's iron ore marine
shipping trade volume.
Except for China,
whose demand for iron ore increased last year, the
demand of other countries and regions basically
stayed at usual levels.
Luo said that as
the Chinese steel industry was currently at an
all-time low, with nearly 40% of China's 83 large
and midsize iron and steel enterprises - the
exclusive consumers of iron ore - making losses,
if the iron ore suppliers did not consider the
situation of their long-term cooperation partners,
the negotiations would hurt both sides.
Meanwhile, Luo stressed that Chinese
enterprises should coordinate their actions in
negotiations with the three leading suppliers,
which control 70% of the world's seaborne iron ore
trade. Currently, 70 Chinese enterprises with the
right to import iron ore have founded a work
committee for the negotiation of iron ore imports.
In late February, it was announced that
China's largest steelmaker, Shanghai Baosteel Group
Corporation, had failed to reach an agreement on
2006 iron ore prices with major overseas miners,
according to an unnamed source close to the issue.
The negotiations broke down due to the two sides
insisting on vastly different prices.
"[The] miners insisted on raising prices
further while we insisted on cutting [prices] ...
We didn't get any chance to [go over] detailed
figures because both parties [were] expecting
opposite price directions," a Baosteel official
said. The Chinese side said since domestic steel
manufacturers were experiencing oversupply and
overseas suppliers were so diversified, a price
increase for iron ore was not justified.
Only Baosteel permitted to
negotiate This year, Baosteel is the only
representative of Chinese enterprises in talks
with miners. The prices Baosteel agrees on will be
accepted by all domestic mills and iron ore
traders.
The China Iron & Steel
Industry Association said all other steelmakers
and iron ore trading companies had been banned
from holding individual iron ore price
negotiations for 2006 term contracts with
international miners. The association predicted
that China's crude steel production growth would
slow to 10% this year, compared with the 24.56%
last year.
China is also developing new
sources of iron ore imports. Imports from India
increased by over 36% last year. Meanwhile,
according to statistics released by the
association, the spot price for iron ore declined
late last year to US$66 per ton from $83 last
April.
Long-term iron ore prices between
major suppliers and buyers are generally settled
before April, when delivery begins. BHP Billiton
Ltd was quoted by Reuters as predicting
negotiations could be extended beyond April.
"The contract year has at least another
month to run ... sometimes it is settled before
Christmas and sometimes it's not settled until
after the contract year," said Graeme Hunt,
president of BHP Billiton's iron ore division.
If an agreement cannot be reached before
April 1, the two sides could trade iron ore at
last year's price for another six months before
they reach a final agreement.
However, the
volatile negotiation has already caused a price
rise for steel products in China. Baosteel has
raised its key steel products by about 10% for the
second quarter this year from this quarter,
according to the company's salespeople. The prices
for hot-rolled and cold-rolled steel products may
see a rise between 150 to 700 yuan ($18.50-$86.40)
per ton.
In fact, China is playing a
bigger role in the long-term price negotiations
this year. Japan's Nippon Steel, a major iron ore
buyer that has previously played a major role in
negotiations, has not yet reached a 2006 agreement
with suppliers, opting to wait for China's
outcome. Experts predict that China's influence
over negotiations is likely to keep this year's
price increase small.
Last year, Chinese
mills and iron ore traders accepted a 71.5% rise
in iron ore prices, which was set by Japanese
companies. Figures from customs show that in 2005,
China imported 275 million tons of iron ore, up
32.3% year-on-year and accounting for 43% of the
world's total ore shipment.
