Reports from China suggest that the Brazilian miner Vale, has floated the idea that it could accept a 10% reduction in this year's iron ore contract prices, a Shanghai-based analyst with sources in the Chinese steelmaker Baosteel, said Wednesday.
Baosteel is representing Chinese steel mills in the annual contract price negotiations with leading miners, but the Chinese steel industry and the world's top three iron ore miners - including Vale - remain way apart on their views about the level and method of pricing for 2009, the analyst said.
The two sides concluded their latest round of talks over the weekend in Shanghai without making much progress, industry sources said, and negotiations aren't expected to resume until after the Lunar New Year break next week.
Analysts with sources close to negotiations say actual prices have not been seriously broached. Vale's willingness to reduce prices by 10% was likely floated to the Chinese side before the latest round of talks, but the Shanghai analyst said even that figure was cast as a rough ballpark rather than a formal proposal. Vale officials in Beijing couldn't be contacted for comment.
A 10% reduction in 2009 prices is still a far cry from the 40% drop that Chinese negotiators have demanded, the Shanghai analyst said adding that Australian miners Rio Tinto PLC and BHP Billiton Ltd. have not come up with any price references.
BHP strongly backs a move away from a benchmark contract price to an "index-linked" pricing mechanism, privately tailored for BHP, that more closely tracks spot price movements.
Only Rio met Baosteel and association officials at the latest talks held last Saturday and Sunday in Shanghai, the source said. Vale and BHP did not appear to have followed up on scheduling meetings this week and have appeared reluctant to speed talks up, analysts said. "The miners, especially Vale, have not been very eager to meet," said a Beijing-based analyst, also following the talks with sources close to Chinese companies. "The impression is that they'd rather wait for the economic environment to improve."
If demand recovers in the steel industry, it would weaken the Chinese hand in demanding aggressive cuts in ore benchmark prices this year.
The negotiations have also been slowed by a rift among Asian mills on the Chinese push to have the new contract backdated to start on Jan. 1, rather than the conventional April 1, another Beijing-based analyst said.
The China Iron & Steel Association has been a vocal advocate of an earlier start date. If the Chinese lock in lower prices, the new start date would cancel three months of hefty price increases they awarded the miners in last year's contract.
But Japanese and Korean mills oppose the earlier start date on the ground that the demand may be exploited by miners to extract other concessions from steel mills.
Steel mills will benefit from an earlier start date, but they want to retain the benchmark system, citing its predictability, and they fear the Chinese drive to change the start date allows BHP an opening to force through an index-linked system.
BHP has reportedly been willing to discuss the Chinese proposal for an earlier start date on the condition that Chinese mills replace the benchmark system with an index-linked system.
A report in the Australian Financial Review quoted Tom Price, a Merrill Lynch analyst close to the talks, as saying that Rio and Vale would be unlikely to accede to an earlier start date.
The CISA Secretary General, Shan Shanghua, has also opposed the "index-linked" system, saying it is open to manipulation.
Source: Easybourse, Dow Jones
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