China is trying and lock in lower iron ore prices now as it will be much tougher to negotiate them next year, new analysis shows.
In a note to clients, Westpac said the amount of iron ore Chinese had stockpiled was not excessive, only at levels for the first part of 2008, and could unwind rapidly.
"Such a scenario would lead to a surge in imports in the first half of 2010 and even higher spot iron ore prices," Westpac said.
"China is doing all it can to lock in the cheapest prices possible now - next year it will be much harder," it said.
Iron ore producer Rio Tinto Ltd is taking the lead in global negotiations with Chinese steel mills over future iron ore prices.
Negotiations have been more protracted at any time in the decades-old benchmark pricing system for iron ore.
Major steel mills in Japan and elsewhere have settled on prices about one third below last year's contract prices, to reflect falls in commodity prices, but Chinese mills have been holding out for a better deal.
Chinese mills are seeking cuts of at least 40 per cent from last year's prices, and have mostly been paying spot prices since July 1.
The Westpac analysis indicates Chinese iron ore prices could jump further if Chinese steel mills do not strike a deal on prices.
It said Chinese steel prices were on a rising trend, on par with 2008, US steel prices were 22 per cent up on the May 2009 low, but European prices continued to languish.
"We are not surprised that Chinese iron ore prices are rising again," Westpac said.
In July, four Rio Tinto China-based workers, including Australian man Stern Hu, were arrested and accused by the Chinese government of stealing state secrets in relation to iron ore negotiations.
Mr Hu and his colleagues remain in detention in Shanghai, even though Rio Tinto says they have done nothing wrong.
Source: Sydney Morning Herald
No comments:
Post a Comment