Australia's iron ore giants face another pitched battle with China's aggressive steel sector as they begin discussions that could see prices rise by up to 30 per cent for 2010.
The China Iron & Steel Association admitted yesterday that producers were seeking a price increase of 20-30 per cent -- at least double what mills appear to be prepared to pay.
The impasse risks a re-run of this year's acrimony, when talks collapsed after the arrest of four Rio Tinto executives, including Australian Stern Hu, the company's lead negotiator.
Both sides are starting afresh, with China's largest steelmaker, Baosteel, back to lead negotiations after CISA failed to nail down a result in 2009, costing the Chinese steel sector tens of million of dollars as prices recovered more sharply than expected and they became exposed to rising spot prices.
CISA vice-chairman Luo Bingsheng, in an interview with the China Securities Journal, warned of ``a large degree of difficulty'' in ongoing price talks.
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China, which produces half the world's steel, wanted to reduce ore imports and set a ``unified price'' for iron ore imports, Mr Luo said.
Analysts have widely tipped a rise of 10-20 per cent on the benchmark prices set with Japanese and Korean mills this year, which became de facto contract prices for China.
Mr Luo's public response indicates China's continued determination to control the price-setting process for one of the world's most crucial industrial commodities.
However, the days of a single, industry-wide price are already over, with steel mills using a number of indices to set prices. As well as contract prices, the spot market and a blended pricing mechanism are increasingly used.
The world's third-biggest iron ore producer, BHP Billiton, has been heavily promoting a quarterly index system based on averaged spot prices for number of years.
Du Wei, an analyst at Umetal.net, was not sure a 30 per cent price rise would be obtained.
"The negotiation is yet to begin, and whether the long-term contract market still exists or not is uncertain," she said.
Custeel.com analyst Fu Yao said both prices and annual production were expected to grow, but the rate depended on many factors: ``It's too early to predict that by the end of 2010, the overall price will rise by 30 per cent.
"There are changing elements which might come forth in the second quarter of 2010."
Source: The Australian
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