Thursday, July 16, 2009
Chinese Mills Accept Temporary Iron Ore Price Cut, Umetal Says
Major Chinese steelmakers have accepted a temporary 33 percent iron ore price cut from Rio Tinto Group, and may allow annual contract talks to lapse, Umetal Research Institute said. Some of China’s largest mills agreed to a “provisional” 33 percent price cut offered by London-based Rio, the world’s second-largest producer, said Shanghai-based analyst Hu Kai, declining to name them. The China Iron and Steel Association, comprising steel and trading companies, is still negotiating with Rio on a benchmark contract price, an official said today. The association, whose members have posted losses from slowing demand, sought a discount of as much as 45 percent, more than the 33 percent cut agreed to by Japanese and Korean steelmakers. Talks have been overshadowed by the detention of four Rio executives on July 5 by Chinese authorities for allegedly stealing state secrets that they said harmed the nation’s economic interest and security.
“Rio is unlikely to budge on the price cuts because of the arrests as it won’t be consistent with its business practices,” Hu said. “The talks may end quietly as steelmakers accept the 33 percent as a provisional cut.” Hu said there may be no official announcement about the price agreement. Umetal is the research arm of RGL Group Co., China’s second-biggest iron ore trader this year. Shan Shanghua, secretary general of the Chinese steel association, couldn’t be reached for comment. Nick Cobban, a spokesman for Rio in London, declined to comment.
Rio’s shares rose 2 percent to close at A$50.08 on the Australian stock exchange.
Talks Ongoing
The price talks are ongoing and may conclude soon, Zou Jian, former chairman of the China Metallurgical Mining Enterprise Association, a body of domestic iron ore mining companies, said today in Beijing. Zou cited information from the China Iron and Steel Association for his comment.
Hebei Iron & Steel Group, China’s second-biggest mill by 2008 output, accepted the provisional cut, Vice President Tian Zhiping said last week in an interview.
Chinese authorities last week said they had evidence that Rio employees, including Stern Hu, an Australian citizen and head of iron ore operations in China, stole state secrets. China is accusing Hu of bribing steel executives during iron ore price talks, Australia’s Foreign Minister Stephen Smith said July 10.
The world is “watching closely how this case is handled,” Australia’s Prime Minister Kevin Rudd said today in Sydney, signaling his most aggressive stance since the detention. “I’ll also remind our Chinese friends that China too has significant economic interest at stake in its relationship with Australia and with its other commercial partners around the world.”
Foreign Minister Smith will meet with a Chinese vice foreign minister tomorrow in Egypt, Rudd said.
Longest-Running Talks
This year’s price talks between China and iron ore producers began in January, and passed the June 30 deadline without an agreement, becoming the longest-running in the 40- year history of setting annual prices for the steelmaking material. The 33 percent cut is the first drop in seven years.
The contract price for the benchmark Rio product was settled at about $61 a metric ton, excluding freight costs, for Japanese and Korean mills. Shipping the ore to China’s Qingdao port from Western Australia would cost about $13.32, according to the Baltic Dry Index.
The price of iron ore for immediate delivery to China rose 5.5 percent to $87 a ton, including freight costs, for the week ended July 10, according to Metal Bulletin.
Vale SA, BHP Billiton Ltd. and Rio Tinto have trimmed spot sales to China to ensure supplies to customers in Europe, Japan and South Korea that have agreed to the contract prices, Umetal said last week, leading to higher spot prices in China.
‘Swing Back’
“The steelmakers may swing back to buying from spot should the cash market fall in the future,” Umetal’s Hu said.
Rio’s sales on the spot market were continuing, spokesman Ian Head said from Melbourne today, denying a Financial Times report. The paper had reported Rio and BHP stopped putting spot shipments up for bid, citing the Steel Business Briefing.
BHP Billiton spokeswoman Samantha Evans declined to comment.
London-based Rio today forecast a continued recovery in steel demand in China after posting an 8 percent gain in iron ore output in the second quarter. The company reaffirmed a full- year output guidance of 200 million tons.
Executives from 16 Chinese steel mills taking part in iron ore talks this year received payments from Rio employees, China Daily newspaper reported today, citing an industry “insider” it didn’t identify.
Rio relocated some expatriate staff from its Shanghai office to Hong Kong and Singapore before the detention of Hu, the Australian Financial Review said today. Rio’s Head declined to comment on the China Daily and Financial Review reports.
Laiwu Iron & Steel Group’s shipping executive Wang Hongjiu was “taken away” by authorities on suspicion of providing information to Rio’s employees including Hu, the 21st Century Business Herald said today, without citing anyone.
Source: Bloomberg
