65% iron ore price rise could be precedent for China firms
Updated: 2008-02-19 19:27
BEIJING - The massive 65 percent price rise in iron ore agreed between Japanese and Korean steelmakers and leading Brazilian iron ore supplier Vale could set a 2008 benchmark for Chinese firms.
Hou Wei, a senior analyst with the Chinese Umetal.com website, told Xinhua on Tuesday that this agreement, which affects Japanese steel makers Nippon Steel and JFE Steel, as well as the Republic of Korea's POSCO, was likely to set a benchmark price for this year.
Hou said that although China's largest iron and steelmaker -- Baosteel Group -- was still negotiating with the world's major iron ore suppliers, major Chinese steelmakers were likely to follow international practice and use previous agreements as benchmarks.
The world's largest iron ore provider had concluded negotiations for 2008 with the largest German steelmaker, ThyssenKrupp Steel, with prices for two types of iron ore fines up 65 and 66 percent year on year, said Vale on its website.
Hou said the price rise was "within expectations".
Vale had also signed contracts with Japan's Nisshin Steel, Sumitomo Metals and Kobe Steel on similar terms.
"The magnitude of the price increase for 2008 reflects the continuity of very tight conditions still prevailing in the global iron ore market," Vale said on Monday in a press release.
"Japanese steel companies rely heavily on imported iron ore due to huge domestic demand and it is reasonable that Japanese steel makers are eager to settle the price earlier," said Hou, adding that the global spot iron ore price had soared in line with a demand surge.
Japan, the world's second-largest iron and steel maker after China, imports nearly all of its iron ore.
Vale is in a monopolistic position in the world's mining sector at present and has set the initial price for iron ore for seven years running. Its iron ore output reached 330-350 million tons in 2007, exceeding the combined volume of Rio Tinto and BHP Billiton.
Previously, some market observers held that China could again achieve "initial pricing power" this year.
At the end of December 2006, Baosteel beat other buyers in setting the iron ore price for fiscal 2007. Chinese steel makers agreed with major providers on a 9.5-percent price rise for iron ore imports for 2007. The lower-than-expected increase was deemed a success for Chinese buyers.
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