China may concede to Australian demands to include a freight premium in iron ore price negotiations that could boost this year's price rise to 85 percent, industry sources claimed on Tuesday. Asian steel mills' negotiations with the miners on annual term iron ore prices have stalled over the proposed inclusion of a freight premium sought by the Australian miners to reflect freight savings to China compared with importing Brazilian iron ore.
There is now a strong view within the Chinese industry that miners will achieve the 85 percent increase, exceeding a 65 percent rise already agreed with the Brazilian miner, Vale, the Australian Financial Review reported on Tuesday, citing an unidentified senior source at a leading iron ore trader in China.The report said this was because Chinese steel mills were paying much higher prices on the iron ore spot market than the existing benchmark price.
Industry sources in China added that the steel sector's brisk demand for raw materials such as iron ore also supported expectations that they would agree to the freight premium.
"Australian miners have been very tough during the negotiations, because it is very obvious that Chinese mills are eager to obtain more iron ore supplies to support the growing steel sector," said an executive with a leading state-owned metals trading house. He also said he thought an 85 percent rise, which was first mooted in research reports from several investment banks, was "very likely because the banks are also shareholders of some of the miners".
China's crude steel output in 2008 is expected to grow about 10 percent from last year, from 520 million to 550 million tonnes. The country has taken the lion's share of additional iron ore production from global miners.
The 65 percent benchmark increase was negotiated by rivals including officials at Baosteel Group, which represents Chinese mills in the price negotiations, and the China Iron and Steel Association have repeatedly said that China would not accept a freight premium. No comment was immediately available from officials of the two entities on Tuesday.
Source: Reuters
Minerals And Metals website
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Further to this report Chen Xianwen deputy director general of the China Iron & Steel Association told XFN-Asia that "I have no knowledge of any such arrangement. Also, I have not seen the report so I am not in a position to comment further.”
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