Baosteel Group Corp., China’s biggest steelmaker, started annual iron ore contract talks with Rio Tinto Group yesterday amid expectations that prices may plunge, two company executives said.
The companies exchanged views on the economy and industry outlook in a Shanghai meeting, said one of the executives, who asked not to be identified because the talks are confidential. Discussions with Brazil’s Cia. Vale do Rio Doce and BHP Billiton Ltd. will start soon, the second executive said.
Chinese steelmakers, the largest consumer of iron ore, may win their first price cut in seven years as a global economic slowdown led to losses and falling demand. Vale, Rio and BHP, who account for three quarters of traded iron ore, need to stave off the cuts to support profits as metal prices plunge.
Iron ore “producers will have to give a fair bit back this year,” said Ken West, a partner at Perennial Investment Partners Ltd. in Melbourne, who helps manage the equivalent of $1.9 billion, including Rio shares.
Gervase Greene, a spokesman for the iron ore unit of London-based Rio, declined to comment.
China will ask for a “big drop in iron ore prices,” Shan Shanghua, secretary in general of the China Iron and Steel Association, said last month. Baosteel represents Chinese mills in talks.
The mills are also requesting that the new contract prices take effect retrospectively from Jan. 1, instead of from April 1, Shan said yesterday in an interview. Prices, which jumped as much as 97 percent last year, should also be reviewed more regularly, he had said in December.
Typically the talks can last for months before the companies agree on prices. This year’s talks will probably be difficult and take a long time, one of the executives said. The companies didn’t discuss prices yesterday, the executives said.
Contract prices, which start April 1, may fall as much as 50 percent this fiscal year, Australia and New Zealand Banking Group Ltd. said.
“The iron ore producers would want a settlement as late as possible” to wait for a global economic recovery, said Perennial Investment’s West. “The steel mills would want to settle early.”
Cash prices of imported iron ore at Qingdao, China’s biggest port handling the shipments, rose 7.9 percent last week, the first gain in four weeks, on expectations the nation’s stimulus package will spur construction demand.
Still, Nanjing Iron & Steel United Co., Maanshan Iron & Steel Co. and other Chinese mills have delayed iron ore imports.
Maanshan Steel, China’s fourth-largest steelmaker, still has enough stockpiles for two months’ use, Hu Shunliang, a company spokesman, said last week.
Rio and BHP ship iron ore from mines in Australia and Vale, the largest supplier, from Brazil.
Source: Bloomberg
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