Tuesday, December 02, 2008
Big miners hope for iron ore rebound
Tuesday, 02 December 2008
The world's biggest iron ore miners are hoping recent massive capacity cuts are enough to provide a leg up in annual price negotiations with steel mills. With a decline in global steel output far outpacing falls in supply of the main raw material, it's likely iron ore prices will keep falling. The most immediate casualties will be those who sell the bulk of their material at prevailing spot rates.
But the three biggest miners, Brazil's Vale, and Australia's Rio Tinto and BHP Billiton, along with an army of smaller miners that also sell mostly on long-term contracts, will share the pain.
"Iron ore is not the Holy Grail it was six months ago," James Wilson, an analyst with DJ Carmichael & Co, said.
The spot price collapse to around $US60 a tonne from $US197 in March should set the tone for contract talks, and underscore how far the market has drifted since prices were last set.
The Australian Financial Review says China's peak steel body is asking its members to consider pricing iron ore quarterly, rather than the current annual benchmark system.
According to the newspaper, an official involved in talks with the China Iron and Steel Association says the collapse of iron ore prices has prompted the body to consider reviewing prices more regularly, after locking in massive price increases before iron ore collapsed.
But China's steel mills are hesitant to agree to the idea.
The report says they're suspicious that it's merely a way of getting steel mills to agree to pricing set by BHP.
Additionally, it makes it difficult for steelmakers to budget effectively if the prices is bouncing so significantly.
As Adapted from Reuters
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