Chinese steelmakers are not likely to accept the 19 per cent increase in iron
ore prices agreed to by Germany's ThyssenKrupp AG, according to the China Iron
and Steel Association.
The price accepted by the German company would not be taken as the global
benchmark as European mills are represented by Arcelor SA in negotiations for
long-term prices, while Chinese steelmakers are represented by Shanghai-based
Baosteel Group, said Qi Xiangdong, deputy secretary-general of the association.
But he admitted that the agreement would have some impact on Baosteel's
negotiations.
The elements of the Asian market, in particular the specific conditions of
the Chinese market, must be taken into consideration in setting iron ore
pricing, the association said yesterday on its website.
"Otherwise, Chinese steel companies will not accept the prices," it insisted.
The 19 per cent was above what Chinese buyers could afford, said an unnamed
insider.
"Even if an increase is inevitable, China will strive to make a good deal,"
he said.
ThyssenKrupp reached an agreement on Monday with Brazil's Cia Vale do Rio
Doce, the largest iron ore miner in the world, accepting a 19 per cent rise on
iron ore prices in 2006. It is the first agreement this year between a major
steelmaker and a producer.
Baosteel, Arcelor SA and Nippon Steel Corp, which represents Japanese iron
ore importers, are still in talks with the world's top iron ore miners Vale and
Anglo-Australian groups Rio Tinto Ltd and BHP Billiton Ltd. The talks have been
prolonged by over a month compared to past agreements.
Local media said Nippon Steel Corp could only accept limited material price
rises this year. The company led a 75-per cent increase in the long-term
contract last year.
Vale pressed buyers to accept a 24.6 per cent increase. China Iron and Steel
Association refused to accept the figure, saying it was "not rational."
According to Sydney-based Global Mining Research statistics, every 1 per cent
increase in iron ore prices will add US$29.6 million to Rio's profit and US$21.4
million to BHP Billiton's profit.
China's demand for iron ore increased by 75.9 million tons and 121.8 million
tons in 2004 and 2005 respectively.
In a bid to meet domestic demand, China is diversifying sources of iron ore.
China's output of iron ore is expected to increase by 77 million tons this
year.
Associations of Chinese importers are looking at long-term co-operation with
Indian miners, who used to focus on the short-term cash market.
The country also plans to shut down small mills with an annual production
capacity lower than 200 cubic metres. The move is expected to reduce China's
demand for iron ore by 60 million tons.
(China Daily 05/18/2006 page9)
(For more biz stories, please visit Industry Updates)
