No deal yet on iron ore contracts

By Yu Liang (China Daily)
Updated: 2009-07-09 10:54

China's negotiations with three major suppliers for iron ore pricing were still continuing, according to the country's second largest mill, Hebei Iron and Steel Group.

Iron ore being piled up in Rizhao Port in Shandong province. [CFP]

The company's vice-president Tian Zhiping was quoted Wednesday by Bloomberg News as saying: "The iron ore price talks are still going on. China Iron and Steel Association (CISA) would inform us immediately if it's going to sign the agreement, but so far we haven't heard anything."

His remarks came as a denial to earlier reports by China Business News, which said China had agreed on a 33 percent cut from last year's price, albeit for six months rather than for a whole year. Earlier, Japanese and South Korean rivals and Rio Tinto had agreed to a 33 percent cut in iron ore prices for the year.

Chen Xianwen, head of the marketing department at CISA, said that "all news should be subject to the statement from CISA and Baosteel," and declined to comment further.

CISA, which leads the talks, officially rejected Rio Tinto's price agreement on May 31 and had been seeking a reduction of at least 40 percent. Experts estimated that the association might agree to conduct negotiations on a biannual basis with talks for the second half now underway.

Biannual talks are expected to better reflect the ups-and- downs in the market but it will also expose China to a potential risk of re-pricing iron ore at higher costs later this year in case demand from other markets, such as Europe, recovers.

Several steel officials contacted by China Daily Wednesdays said they were unaware of any settlement.

The world's second largest iron ore miner, Rio Tinto, was also unavailable for comment Wednesday.

Meanwhile, a Reuters report said another major Australian iron ore supplier, BHP Billiton, was unlikely to settle its talks with any Asian mill because of issues of carry-over amounts from 2008 contracts.

"The issue of settling iron ore carry-over from 2008 contracts is one of the biggest stumbling blocks in a deal with BHP ... a settlement is unlikely to emerge any time soon," a source close to the negotiations was quoted as saying.

Last year, Asian steelmakers agreed to prices that had almost doubled for Australian iron ore but many have reneged on those contracts since the last quarter of 2008 when the global steel market collapsed, hit by the worldwide economic slowdown. China said it deserved a bigger say in the talks but increasing crude steel output and iron ore prices at the spot market are adding pressure on CISA in the negotiations.

Statistics from the Umetal Research Institute showed that China's crude steel output reached 45.4 million metric tons in June. Ore for immediate delivery rose to a four-month high of $82.50 a ton in the week ended July 3, according to Metal Bulletin.

"If spot prices move for a sustainable period of time to levels higher than the contract prices for 2009-10 set with South Korea and Japan, the willingness to hold out for a better outcome by the Chinese steel mills will lessen significantly," said Tim Schroeders, who helps manage the equivalent of $1 billion at Pengana Capital Ltd in Melbourne.