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Chinese steel mills seeking iron ore price cuts |
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administrator |
DATE |
2008-10-18 11:25:58 |
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Chinese steel mills seeking iron ore price cuts
By Ginger Ding, Oct 17, 2008
Shanghai. October 17. INTERFAX-CHINA - Chinese steel mills are seeking to renegotiate annually-contracted benchmark prices with the world's top three iron ore miners, as plummeting steel product prices force production suspensions and closures, an insider told Interfax on Oct. 17. "We have been in communication with many other steel mills and have prompted the representative China Iron and Steel Association (CISA) to bring Chinese steel mills together for another round of talks with razilian and Australian iron ore miners to discuss a cut in contracted benchmark prices for this year and next," said an official with a northern China-based steel mill, who asked to remain anonymous.
CISA officials were not available for comment, when reached by Interfax. "The unfolding financial crisis this year has severely dented demand for steel products worldwide. Chinese steel mills are now being squeezed hard by abnormally high raw material prices and sliding product prices.
As they find it more difficult to make ends meet, many are forced to cut back output," the official said.
"We expect the world's top three iron ore miners will cancel this year's increases on iron ore benchmark prices, in the interests of assuring our long-term cooperation," he added. "[If the proposed cuts are rejected] many steel mills would be forced out of the business, which would affect iron ore demand in the long run.
Recent production cuts have done little to stabilize the weakening market," the official added.
Since the beginning of the month, domestic steel mills, including Hebei Iron and Steel Group, Shoudu Iron and Steel Group, Shandong Iron and Steel Group, Anshan Iron and Steel Group and Ma'anshan Iron and Steel Group, have all cut production.
"The country's steel mills have cut production by an estimated 20 percent, and it is said that Baoshan Iron and Steel Group has closed one of its blast furnaces with a 700,000 ton to 800,000 ton per month steel production capacity," Yu Liangui, an industry analyst with Mysteel Information, told Interfax.
This year, Brazilian-based Vale is charging Chinese steel mills between 65 percent and 71 percent more for contracted iron ore deliveries than its 2007 contracted prices, while Australian miners Rio Tinto and BHP Billiton negotiated prices this year that stand between 79.88 percent and 96.50 percent higher than the previous year.
Earlier in the year, Vale attempted to force a price hike halfway through the contract year to put it on more of a par with the two Australian iron ore miners, a move rejected by Chinese steel mills.
The steel mill official confirmed for Interfax that Chinese steel mills will absolutely not accept the mid-term price rise, saying that they would not be content just with avoiding price hikes, but actively
looking for price cuts instead.
Spot Indian iron ore prices are now below long-term contract prices for the first time in seven years. "With Indian iron ore prices and freight rates down so sharply, it is time for Chinese steel mills to gain the upper hand ahead of annual long-term contract negotiations with Vale, Rio and BHP for 2009 iron ore supply," he said.
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