Cia. Vale do Rio Doce, BHP Billiton Ltd. and Rio Tinto Group, the three largest iron ore producers, may engage in a discount competition in China because of an oversupply, Mysteel Research Institute said.
Iron ore sales to Europe and Japan by the three companies may drop by more than 100 million metric tons this year, forcing them to sell more to China should they not slash production, analyst Xu Xiangchun said in Beijing at a conference today.
Benchmark contract prices for the steelmaking material may drop for two years, undermined by “whopping oversupply,” Citigroup Inc. said March 24. Steelmakers in Europe and Japan are slashing output and cutting jobs as the global recession curbs demand from carmakers and builders.
“Cutting prices will be the only way for miners to sell their additional supplies to China,” Xu said. “Miners will eventually have to sell at lower prices on the spot market.”
Cash prices of iron ore imported by China, the world’s biggest buyer, fell for a second week last week. Prices had dropped to 600 yuan ($88) a metric ton.
The three iron ore producers, which account for about three-quarters of the traded material, will have to compete with Indian and Chinese products, Xu said. Iron ore miners and steelmakers are now in talks to set annual benchmark contract prices for the year starting April 1.
Steel prices in China have dropped 13 percent since February after production had jumped on expectations of revived demand spurred by the government’s 4 trillion yuan ($585 billion) stimulus plan. Beijing-based Shougang Corp. this month called for steelmakers to cut output by 20 percent.
“Chinese steelmakers, whether big or small ones, are very reluctant to cut production,” said Xu. Prices may recover only when daily production drops below 1.25 million metric tons, he said.
China’s crude steel production was 40.4 million tons in February, equivalent to 1.33 million tons of daily output, according to figures from the National Bureau of Statistics.
Source: Bloomberg
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