Friday, March 20, 2009
China steelmakers want ore at '07 price level - group
Friday, 20 March 2009
China's steel industry reiterated on Thursday its view that term iron ore prices should fall by at least 40 percent to 2007/08 levels, pressuring miners to accept deep price cuts, as steel firms struggle with faltering demand. The world's top three iron ore miners -- Brazil's Vale, BHP Billiton Ltd and Rio Tinto Ltd/Plc -- control two thirds of global seaborne trade of the steelmaking ingredient and are currently in talks with Asian steel firms over annual contract terms.
"We asked during negotiations that the price level for this year should be negotiated based on the 2007 (term year) level, because the situation for 2008 was a mess and could not reflect the actual supply-and-demand situation," said Shan Shanghua, secretary general of the China Iron and Steel Association.
A 40 percent price cut, also demanded by Japanese firms including JFE, would be the biggest annual price fall in history and would end six years of consecutive price gains, which boosted prices nearly five-fold during the period to $91 a tonne.
Negotiators face pressure to reach agreement before the new fiscal year starts in April, and the talks are set against a backdrop of global steel usage suffering its steepest decline since the end of World War Two.
Japan reported on Wednesday that its crude steel output in February fell a record 44 percent to its lowest since 1968.
Miners, however, have little incentive to quickly settle on benchmark prices amid expectations that Chinese demand will revive, driven by government stimulus measures.
CISA's Shan indicated that China would give the largest volume to a miner that accepts its price demand, adding that Baosteel Group was negotiating for the entire China steel industry and now represented a much larger volume of iron ore supply.
"That means the negotiating power is strengthened... We hope the negotiation could end as soon as possible, but if miners want to delay the settlement, we can wait."
Some brokerages have lowered their iron ore price forecasts this week, citing prospects of sharply reduced global steel output.
"We believe the major contract suppliers of iron ore will eventually be forced to concede bigger than previously expected price cuts in order to compete with spot suppliers," Goldman Sachs JBWere said on Tuesday, revising its 2009/10 ore contract price forecasts to a 40 percent drop from the previous 30 percent fall.
Macquarie also revised its ore price forecasts, to a cut of 35 percent this week from 30 percent reduction, and CLSA now expects prices to fall 30 percent, more than the 20 percent fall it was previously forecasting.
China's steel sector, the largest in the world, produced nearly 40 percent of the global crude steel output in 2008 and consumes more than 50 percent of the global seaborne iron ore trade.
Source: Reuters
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