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Steelmakers yet to reach price deal with global ore firms

By Zhang Qi and Hou Qingyang (China Daily)
Updated: 2010-02-23 09:15

Major Chinese steel mills have not reached an interim price deal with BHP Billiton Ltd as reported by foreign media earlier this month, a sign that Chinese steelmakers will consolidate their efforts in upcoming benchmark iron ore price negotiations.

One source representing a major State-owned steel mill said no price deal has been reached between major Chinese steelmakers and the world's three biggest iron ore suppliers, Rio Tinto Group, BHP Billiton Ltd and Vale SA.

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"We agreed to consolidate our efforts in this year's price negotiations during an internal meeting of the China Iron and Steel Association in early February," said the source. "No one would be so foolish as to arrive at any interim deal with talks still ongoing."

In mid-February, Dow Jones cited Hu Kai, an analyst at research house Umetal, as saying BHP Billion Ltd had reached an interim price deal with several Chinese steel mills for a 40 percent increase over 2009-10 iron ore benchmark prices. However, the analyst claimed to have been misunderstood.

"I only said some Chinese steel mills bought iron ore this January at a spot price 40 percent higher than last year's benchmark price. There was no interim price deal," said Hu.

Benchmark prices are long term or bulk prices discounted from spot prices.

Baosteel Group Corp will negotiate benchmark prices on behalf of Chinese steelmakers this year with the three global mining giants.

Though Chinese steel companies are insisting on a consolidated effort to bargain with the three global firms, iron ore prices may still rise, driven by China's huge demand, said industry analysts.

"Overcapacity in China's steel industry has driven up the demand, but new mines are not productive enough to feed the huge demand," said Hu. "Supply is less than demand and this will not change over the next two to three years."

Customs figures show China imported 630 million tons of iron ore in 2009, up 41.6 percent from 2008, mainly from Australia and Brazil.

Boosted by government stimulus, infrastructure expansion and vehicle manufacturing, China's demand for steel last year was massive.