Friday, June 19, 2009
China's steelmakers possibly turn to spot market if price talks break down, analyst
Friday, 19 June 2009
The spot market would be the decisive factor in China's iron ore imports if the ongoing negotiations between the country's steel mills and the overseas miners break down , Thursday's China Daily quoted an industry insider as saying.
The supply chain would continue working smoothly on the spot market, for many domestic steel makers and foreign suppliers had been tapping this as a main business model recently, the newspaper quoted Hu Kai, an analyst with Umetal.com.
The 33 percent price reduction reached between Japanese steel makers and the Austrilian miners in late May, and the proposed alliance between Rio Tinto and BHP Billiton, the world's two largest miners, have imposed great pressure on the Chinese side in the negotiation.
But with only two weeks left for the expiry of last year's ironore supply contract, the China Iron and Steel Association (CISA), leader in the iron ore talks, insists a 40 percent price cut from the Australian miners.
The major reason that China's steel makers reject the 33 percent price cut was that the rate was at least 5 U.S. dollars higher than the current spot market price, according to Hu.
In addition, Chinese steel plants will suffer huge losses if they agree to a 33 percent price reduction this year, said the CISA earlier.
Many insiders believe if the Chinese side fails to reach the deal with suppliers before June 30, they may seek a new quarterly pricing system, within which the steel mills ask for quarterly price adjustment under the benchmark price in accordance with the ups and downs of steel mills' cost and prices.
The Chinese government also expressed strong opposition to the Rio Tinto and BHP Billiton's proposed alliance.
An official with the Ministry of Industry and Information Technology (MIIT) said the proposal had a "strong monoplistic color".
China might have to seek new policies and regulations to enable its companies to have a bigger say in iron ore price talks if the tie-up was found to be monopolistic, the newspaper quoted Chen Yanhai, another official with the MIIT.
Source: Xinhua
