Baosteel Faces Difficult Second Half-Year

Company Looking for Alternative Iron Ore Sources

The chairman of the group company of Baosteel, China’s leading steel manufacturer says that the Chinese steel sector is likely to face difficulties in the second half of the year amid a slowdown in the real estate sector.
Speaking on the sidelines of an industry conference in Beijing, Xu Lejiang told reporters "In the second half of the year it is uncertain whether the yuan will appreciate, whether interest rates will rise.

"There is also the property market, and fixed asset investment could also fall."
Real estate development in China saw Chinese steel mills through the global economic crisis against a steep fall in exports but the government is trying to keep a lid on surging property prices and is set to legislate against speculation.

But the industry has also been affected with raw materials costs also rising and with the three global mining giants, Rio Tinto, BHP Billiton and Vale moving to quarterly prices against annual contracts.
The China Iron and Steel Association (CISA) said at a press briefing earlier this month that mills were now free to secure their own individual deals with their suppliers and Mr Xu confirmed Baosteel was currently sourcing iron ore from foreign miners on a temporary price basis, however he warned the conference that the advantages currently enjoyed by the big thre miners were unlikely to last.

"Across the world, iron ore isn't a scarce resource but it's just that in recent years, the ability to supply iron ore has not matched the development of the steel industry, especially the Chinese steel industry," Mr Xu said.

The three miners have been able to exert considerable control over the volumes of new iron ore reserves available to the market but their high price demands would push steel mills to develop alternative supply sources, he added.

"In two or three years the demand and supply situation will see a big improvement," he added.

China Allows Steel Mills To Sign Individual Contracts

China Allows Steel Mills To Sign Individual Contracts

The lobbying body for the Chinese steel industry, the China Iron and Steel Association (CISA), has acknowledged that Chinese steel mills have signed individual deals with global miners, but it said that iron ore price negotiations are continuing

"Considering the operating pressure and difficulties of steelmakers, they [the steelmakers] can now talk with the big three miners and buy iron ore at provisional prices under CISA's regulations," said Vice-chairman Luo Bingsheng.

Despite this Mr Luo said that price negotiations were ongoing: "It is totally the individual business of companies," he said. "They [the miners] offer a price we don't accept, that doesn't mean the end of negotiations. The price talks are still going on."

CISA previously refused to allow Chinese steelmakers to sign contracts until a national benchmark price had been agreed. Despite previously suggesting that a deal would be done-and-dusted by 1 April talks have dragged on with seemingly no end in sight.

CISA also asked domestic steel companies and traders to stop buying iron ore for the two months from Vale, BHP and Rio Tinto to protest against the price monopoly.

Earlier reports said some Chinese steel mills have accepted a quarterly pricing regime, based on the previous three months' average spot prices or at a price agreed by steel mills in Japan and Korea. The prices were said to be around 90 per cent higher than the previous benchmark price and were to run for a period of just three months from 1 April instead of the customary one year’s duration.

China is the world’s biggest importer of iron ore.

China Ends Iron Ore Talks

"Current negotiations have not been negotiations" - CISA chief

Iron ore price talks between Chinese steel mills and the big three global iron ore suppliers - Vale, BHP Billiton and Rio Tinto - have been suspended, Luo Bingsheng, vice-chairman of the China Iron and Steel Association told reporters on Tuesday.


"The current negotiations have not been negotiations at all because no buyers have been given a say (in deciding prices)," Mr Luo said at a briefing.


He added that the monopoly status of the three big three suppliers meant that they were no longer considering the interests of their customers, he said.


He said China would take a strategic approach to resolving its dependence on foreign ore suppliers by trying to encourage domestic iron ore output.


Meanwhile spot prices in China fell on fears that government measures regarding the property market would curb demand for iron ore. This follows rising property prices in China.

On 24 April China’s securities regulator announced moves that requires developers to submit fund-raising plans for review, adding to curbs imposed by the central bank on loans for third-home purchases, increased down-payment requirements and higher mortgage rates.


Iron ore prices have soared, reaching $189.50 last week for 63.5 percent-content iron ore in Chinese ports while import prices averaged $96.31 a ton in the first quarter. However, steel stockpiles rose earlier in the year as the Chinese property sector appears to have cooled in the light of rising prices and more regulation.


However, Mr Luo said that steel inventories have dropped 9 percent to 9.77 million tons as at 23 April.

CISA Chief Blasts Miners' Dictatorial Attitude

Luo Accuses Miners of "High Degree Of Monopoly"

The chairman of the China Iron and Steel Association has blasted iron ore miners for their attitude towards their Chinese customers.

Speaking at an industry conference, Luo Bingsheng said that the miners are no longer negotiating but dictating prices to their customers.

"There are no negotiations any more," Mr Luo said "now it's 'I say the price, you must accept, or else we will stop supplying you.'"

Mr Luo accused miners Vale, BHP Billiton and Rio Tinto of "a high degree of monopoly" in the supply of seaborne iron ore.

He added that while steel prices have risen sharply the domestic steel industry still faced the challenges of global protectionism, sharply higher inventory levels and slow consolidation in the industry.

Australian Trade Minister Rejects Calls For Iron Ore Boycott

"Market Should Determine Price" - Crean

Australia’s Federal Trade Minister Simon Crean has criticised calls from China for a two-month boycott of iron ore purchases from the ‘Big Three’ global miners.

A report over the weekend said that the China Iron and Steel Association (CISA) has urged the boycott in protest at what it claims is a price monopoly by Rio Tinto and BHP Billiton, and Vale.

CISA urged steelmakers and traders to use up what it claimed to be a two-month stockpile of iron ore in the nation’s ports before buying again from the large global miners.

Last week steelmakers in other Asian countries such as Japan and South Korea agreed to accept price increases of almost 100 per cent for iron ore supplies over the next three months; however Mr Crean said that calls for a boycott went against the spirit of the market.

"You've got to let the market determine the price. You can't be issuing directives in terms of restricting supply," he said.

Mr Crean suggested that China should seek market-based remedies such as helping to improve efficiency and iron ore supply from Australia.
"That's the way you get the balance back between demand and supply. To simply try and do it through central edict defeats the whole purpose of functioning as a market," he said.

Mr Crean suggested that CISA’s call would fall on deaf ears and that a boycott was unlikely to succeed because demand for iron ore in China was so high.

Chinese steelmakers are still in talks with the three large mining groups over a benchmark price, however there are fears that the benchmark pricing system may be coming to an end. Traditionally, prices have been set annually for the period from 1 April to 31 March each year; however with spot prices around double previous contract prices miners have been trying to impose quarterly pricing contracts on their customers. Although steelmakers in Japan and South Korea have agreed to quarterly pricing Chinese steelmakers – and their government – are known to want the annual pricing mechanism to continue.




China is the world’s largest consumer of iron ore.

China Calls For Big Three Iron Ore Boycott

CISA Urges Importers To Observe Two Month Boycott

A report from China suggests that the China Iron and Steel Association has asked domestic steel companies and importers to stop buying iron ore from Vale S.A, BHP Billiton Ltd. and Rio Tinto PLC for the next two months. The report, in the state-run newspaper, the Shanghai Securities Times, says that CISA has made the request in protest against what it sees as a price monopoly by the world’s three biggest iron ore miners.

China’s iron ore stocks currently stand at 75 million tonnes, enough for two months’ production, the newspaper said, citing CISA Secretary-General Shan Shanghua.

The newspaper also reported that they boycott is aimed at what it describes as "unreasonable requests for price hikes" from the global iron ore producers' and their move to a quarterly pricing system.

CISA met with steel mills on Friday to discuss strategy over the ongoing iron ore talks.

Click here for an archive of articles on the 2010 iron ore benchmark talks

Vale Asks For 100 Per Cent Price Increase

Brazilian miner Vale S.A. has asked Chinese steel mills for an increase of between 90 and 100% in the 2010 iron ore benchmark price, the China Iron and Steel Association Vice Chairman Luo Bingsheng said on Friday.

Vale first proposed a 90% increase, then later increased this to 100%, Mr Luo said at an industry conference.