China, the world’s biggest steel producer and user, may lack iron ore after annual contract talks foundered and demand for the raw material increased, according to Macquarie Group Ltd.
Discussions between Chinese steel mills and iron-ore producers stalled this year as negotiators for Rio Tinto Group were detained for alleged theft of trade secrets. Steel production in the country has revived at the same time that rebounds elsewhere have stoked demand for iron ore, Macquarie’s Jim Lennon said today at a presentation in London.
“Because the Chinese refused to sign a formal contract, they don’t have particular right to tonnage,” said Lennon, head of commodities research at Macquarie. “Demand outside of China is picking up. The iron-ore producers are pulling tonnage out of China and pushing it back into Japan, Korea, Taiwan and Europe, so there is an impending shortage in China.”
Mills in China operated at full capacity in August after output cutbacks in 2008 stemming from the global economic and financial crisis, Lennon said. About 200 million metric tons of Chinese capacity has been restarted this year, he estimated. Cash prices for iron ore rose to $111 a ton in August in China, the highest since October, according to Metal Bulletin.
Domestic output of iron ore fell 30 percent in China in 2009’s first half, according to Lennon. “We’re hearing that just over the last month or so, domestic iron-ore producers of about 60 percent of capacity that had shut have reopened,” he said, causing some easing in immediate-delivery ore prices.
Rio, the world’s second-largest exporter of iron ore, said on Sept. 4 it was shipping the steelmaking ingredient to China based on the 33 percent discount it agreed to with Japanese, South Korean and Taiwanese mills. Chinese producers want a 35 percent reduction.
The company has said it will “strongly support” the detained employees and that it believes they “acted properly and ethically in their business dealings in China.”
China bought 49.7 million tons of iron ore in August, according to customs figures released on Sept. 11, down 14 percent from July’s 58.1 million tons. Purchases climbed 33 percent from a year earlier.
Iron-ore inventories in the nation’s major ports were 75.9 million tons as of Sept. 11, up 26 percent from the beginning of the year, according to data provided by Beijing Antaike Information Development Co.
Source: Bloomberg
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