Tuesday, March 2, 2010

Hebei Iron and Steel Suggests Unified Iron Ore Price

Reports from China suggest that a proposal has been put to the Ministry of Industry and Information Technology (MIIT) that a national iron ore company be formed to centralise imports.

The report, in the People’s Daily quoting the website sina.com.cn, suggests that a senior executive from Hebei Iron and Steel Group, China’s second-largest steel mill, has made the proposal that the country’s 16 largest steel mills band together to form the new company, which would unify import prices and distribute iron ore according to its ownership ratios. The move – bringing together mills with a production capacity of 10 million tons a year – would enhance China’s bargaining power with the large iron ore miners.

Hebei Steel Vice-General Manager Tian Zhiping, said on Monday that he was unaware of any such proposal.

Last month, the vice-president of the China Iron and Steel Association, Luo Bingsheng, said that reducing the number of licensed importers and promoting the agent system at a unified price for iron ore will be primary targets for CISA this year. He said that China must strive for a unified price for iron ore imports to regulate the market and erase the difference between contract and spot prices.

Agents can levy a commission of 3 to 5 percent on the total iron ore import charges collected.

Analysts have suggested that with Chinese steel production set to top 620 million tonnes this year, the benchmark price for iron ore imports would rise by anything from 30 per cent upwards. Investec Securities Plc raised its forecast for 2010 iron ore prices to an increase of over 55 percent. It had previously suggested a 20 percent hike.

Prices of the 63.5 percent iron-content ore rose to $142 per ton including freight on Monday, according to Mysteel Index, more than double the $60 a ton benchmark price level reached in 2009.

"The Hebei proposal aims to enhance import concentration to gain more bargaining power at the ore talks. However, the same can be achieved by consolidating steel mills, and I think that would be an easier step," said Hu Kai, a senior analyst at consulting firm Umetals.

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