The China Iron & Steel Association will ask steelmakers to agree on a purchasing price for spot iron ore to avoid a bidding war, should long-term contract talks fail with the world’s largest suppliers.
Auctions of iron ore on the spot market set “speculative” prices, General Secretary Shan Shanghua said today in a phone interview. The association is seeking to stop Chinese mills and traders from taking part in auctions now, he said, without elaborating.
China, the world’s biggest buyer of iron ore, has rejected a 33 percent price cut accord struck by Rio Tinto Group and Nippon Steel Corp., and called for contract prices to drop as much as 45 percent. Talks between Chinese mills and suppliers are deadlocked, China Minmetals Corp. said yesterday.
“If the contract price talks fail, there should be a guide price for spot ore,” Shan said. “Mills shouldn’t negotiate individually on spot prices.” Steelmakers should also agree on how often they set prices, he said.
Spot iron ore prices, which exclude freight charges, at major Chinese ports have risen 23 percent in the past two months to $73 a metric ton, according to Steel Business Briefing.
“Setting one spot price is absolutely impossible,” said Hu Kai, a Shanghai-based analyst with Umetal Research Institute. “A free spot market won’t follow a single price. Actually miners and many mills are happy with the spot trading now.”
“China may agree to a 33 percent price cut” with possible revisions in later quarters, Umetal’s Hu said. “Or Rio Tinto may agree to a price cut bigger than 33 percent also on a quarterly basis,” Hu said.
The steel association also wouldn’t agree to the 28 percent price cut agreed between Brazil’s Vale SA, the world’s largest iron ore supplier, and Japanese and Korean mills, Shan said.
The association this year replaced Baosteel Group Corp., China’s biggest mill, as the key negotiator in price talks, Shan said. London-based Rio is the second-largest supplier of iron ore and BHP Billiton Ltd. is the third-biggest.
“Baosteel is not negotiating iron ore prices for itself as it did in previous years,” Shan said. “It is commissioned by the steel association to take part in the talks this year.”
China is still “open” for contract price talks with any of the suppliers, though it still won’t accept just a 33 percent price cut, Shan said. He met Vale Executive Director Jose Carlos Martins on June 16 and with Fortescue Metals Group Ltd. Executive Director Russell Scrimshaw yesterday.
A proposed meeting with Rio Tinto’s iron ore negotiator didn’t happen this week in China because of a timing clash with the Fortescue meeting, he said. Perth-based Fortescue is Australia’s third-largest iron ore exporter after Rio and BHP.
Some steelmakers in China’s Shanxi province have signed long-term supply contracts with the three biggest miners, the China Times reported June 16. The mills denied that they have agreed to a 33 percent price cut, the report said.
Source: Bloomberg
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