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Iron ore price negotiations - Chinese steelmakers seek new model on changing market- 25 Dec 10

It is reported that China leading steel mills gradually accept the fact that traditional iron ore benchmark system no longer exists. They are seeking for a more reasonable mechanism pegged to steel price while keeping a close eye on a possible turning point of iron ore supply demand relationships.
China appetite for iron ore is cooling down. Mr Luo Tiejun vice director of MIIT raw material section said on newly held Mysteel annual conference that China steel output and demand growth would be eased. Data also show that China crude output growth in the first ten month is far below that of Europe, Japan and Korea.
The steel market turns sluggish with limited scope to go either up or down and denting demands for iron ore.
Mr Gao Bo Mysteel senior researcher said “China iron ore imports hit 503 million tonnes in the first ten months this year down 8% from corresponding period last year. We expect an annual import of around 600 million tonnes, a bit lower than last year, indicating it will be the first time for China iron ore imports to fall since 2007.”
Mr Xu Lejiang Baosteel Group Chairman reiterated that interim supply demand imbalance and the Big Three’s monopoly caused global iron ore to rocket for the past years.
Mr Wu Dongying head of Baosteel Economics & Management Institute said “With the slowdown of China steel industry, the turning point of iron ore supply demand relationship is sure to approach. We can expect an oversupply in global iron ore market.”

Mr Gao Bo said Chinese steelmakers also work out countermeasures against high iron ore risks. They increase the use ratio of domestic iron ores to wean off dependency on imports. They diversify import sources, including South Africa, Ukraine, Indonesia, Chile, etc. They also put weight on foreign mining interests by overseas investment.
As for the iron ore pricing system, Mr Xu Lejiang expressed earlier that current quarterly mechanism is acceptable yet it needs to be further improved. CISA also claimed that it is necessary to study a new pricing model oriented to steel prices.
This idea is echoed by related government officials. Mr Luo Tiejie expressed that although current quarterly model reduces market risks by dampening speculation, the adopted index is so easy to be manipulated that it has affected the healthy development of Chinese industry. Only when iron ore and steel form a reasonable price relation can a stable industry chain develop.

Dec 25, 2010 10:25
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