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Iron ore talks may be hit as output jumps in China (25-01-2010)
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Steel production in China has gone up in 2009 and this has complicated the country’s iron ore price talks with international companies. A report said the country’s steel production has climbed up by 14 per cent to a record last year. Steel output rose to 568 million tonnes in 2009 from 500 million tonnes in 2008.
The output surge has also fueled demand for raw materials. This would further strengthen the hands of the three big miners in this year’s iron ore negotiations.
The big miners — Rio, BHP and Vale — have so far not held any major negotiations with the Chinese side, led by Baosteel.
In contrast, Australian miners have already held talks with Japanese steel mills for the first round, and decided to set contract prices at 2008 levels.
Global miners have sidelined China, their biggest customer, in the annual iron ore price negotiations and do not plan to travel to the country for talks, instead choosing Singapore as the meeting venue.
The big miners already have an advantage in the negotiations as the spot prices of iron ore surged last week to a record high of $135 per tonne, driven by strong demand from the steel market.
Traditionally, annual contracts are settled at levels below the spot market prices. Last year’s benchmark contract for iron ore was fixed at $60.4 a tonne, excluding freight charges.
This year’s situation is complicated as the three global miners have realized that they have nothing to lose if they fail to reach an agreement with the Chinese steel mills.
Last year’s iron ore price negotiations reached an impasse in June after China’s chief negotiator the China Iron and Steel Association insisted on a 45 per cent discount over 2008’s prices, rather than the 33 per cent cut accepted by the Japanese and South Korean steel mills.
Chinese steel mills are looking at diversifying their iron ore supplies and also explore domestic mines to reduce dependence on the three miners.
Source: Commodity Online
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