Tuesday, December 09, 2008
China Steel Mills Want January Start for Contracts, Group Says
Tuesday, 09 December 2008
Steel mills in China, the world’s biggest users of iron ore, want to bring forward the start of annual supply contracts by three months to Jan. 1 as demand slows, said the China Iron and Steel Association. The mills may delay taking deliveries of the ore because of high stockpiles, Shan Shanghua, association general secretary, said today in an interview.
The worst credit crisis since the Great Depression has slowed economies and cut steel demand and prices. All Chinese steelmakers were unprofitable in October, according to the association, while Baoshan Iron & Steel Co., the nation’s biggest mill, has forecast that tumbling demand may lead to a fourth-quarter loss.
“If the Chinese steel mills are considering it, then they are really feeling the pinch of these low steel prices and the high ore price differential,” said Mark Pervan, senior commodity strategist at Australia and New Zealand Banking Group Ltd.
BHP Billiton Ltd., the world’s third-biggest iron ore supplier, gained 4.1 percent to A$27.22 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Rio Tinto Group, the second-biggest producer, gained 0.3 percent to A$32.
Samantha Evans, a spokeswoman for BHP, declined to comment on the iron ore talks.
“We have heard that several European Union mills have asked the same (as the Chinese), with one demanding a 20 percent cut from January 1 as a condition of resuming shipments,” Macquarie Group Ltd. analysts led by Jim Lennon said today in a report.
Output Collapse
BHP may need to cut ore production by about a quarter next year, Merrill Lynch & Co. said Dec. 5. The iron ore market is in oversupply because of a collapse in steel production, it said.
“No buyer wanted to build stocks ahead of April 1 price cuts,” said Macquarie’s Lennon. Demand for the ore remains “chronically weak,” he said.
Contract prices for iron ore may decline 20 percent, to about $73 a ton for benchmark Australian ore, in the year starting April 1, Merrill Lynch said. That’s down from its earlier forecast for prices to remain unchanged at a record $92 a ton. ANZ’s Pervan is expecting a 50 percent cut in prices.
“Steel mills have been trying to buffer the downturn of steel market by sourcing lower-priced spot material,” he said. “They have pretty much exhausted that avenue and they are committed to these contract tons.”
Cash prices of iron ore imported by China rose last month. It buys most of its spot iron ore from Indian producers.
As adapted from Bloomberg
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