Economy

China's iron ore talks with Vale, BHP 'pointless'

(Agencies)
Updated: 2010-04-02 16:10

China's talks with the world's biggest iron-ore miners are "pointless" as its steelmakers have to accept the higher terms Vale SA negotiated with Japan this week, Jiangsu Shagang Group Co Chairman Shen Wenrong said.

"We have no options," Shen, who heads China's largest privately held steelmaker, said today in a phone interview from Zhangjiagang in Jiangsu province. "Iron ore prices have gone too far. We have to accept it, although we can't afford it."

Brazil's Vale, the largest supplier, set a precedent this week by securing a 90 percent price increase from Sumitomo Metal Industries Co and shifting to quarterly pricing from a 40-year system of selling iron ore through annual contracts. The World Steel Association asked regulators to probe an "oligopoly" among iron ore miners and the China Iron and Steel Association said it will hold an emergency meeting today to discuss the issue.

Vale said Thursday it agreed with 97 percent of its global clients to adopt quarterly price contracts, following moves by BHP Billiton Ltd. to replace annual negotiations with more frequent adjustments to prices. The two companies and Rio Tinto Group control about two-thirds of the $200 billion ore market, according to Credit Suisse Group AG.

China's talks with the three suppliers are still on, He Wenbo, general manager of Baosteel Group Corp., which is representing Chinese steelmakers in the talks, said yesterday.

"The negotiations are very difficult," He told investors yesterday in an online conference.

Private deals

Some Chinese steelmakers have privately reached deals with the suppliers, Deng Qilin, chairman of the China Iron and Steel Association, said last month. The industry group said on March 16 that Chinese mills oppose the 90 percent price demand.

"High prices will spur mine expansions," Shen said. "In the next three to five years, the oligopoly must be broken."

Annual pricing crumbled last year as Chinese steelmakers failed to set a rate with lead negotiator Rio Tinto, followed by BHP's move to cut the proportion of ore sold through annual contracts. Increased rates for the steelmaking material are forcing mills to push higher costs on to customers such as automakers and appliance manufacturers.

Lakshmi Mittal, chief executive officer of ArcelorMittal, said March 31 the world's biggest steelmaker will raise costs for customers by $150 a metric ton this quarter. The new price will be 20 percent more than the current rates compiled by Metal Bulletin.

"We must raise steel prices to pass on the costs." Shen said. "If we can't do it, we will incur losses and will be forced to cut output."