Steel Talks Yet To Conclude Though Parties Agree To Price Cut

Chinese steel mills have yet to conclude 2009 negotiations for iron ore prices with the world's top miners, as the two sides fail to agree on the extent of the price cut amid an uncertainty over demand.

Chinese mills have been in talks since the start of the year to finalise term prices with BHP Billiton , Rio Tinto and Brazil’s Vale .

“Chinese steel mills and the three global miners have agreed on an iron ore price drop for 2009,” Luo Bingsheng, vice chairman of the China Iron & Steel Association, said in its quarterly press briefing today.

But both parties are yet to decide on the level of the drop, he said.

The lack of an agreement has forced miners to sell more ore through spot deals.

While most purchases are being made at discounts of about 30 per cent to 40 per cent over last year’s prices, the sellers aren’t willing to lock in long-term contracts at such levels on expectations that there may be a revival in demand.

Chinese mills, on the other hand, want to extract the most given that they were forced to agree on a 70 per cent increase in prices last year due to sky-high prices of oil and services.

Mr Luo also said the industry has asked the government for more export tax rebates as stocks are piling up because weak local demand and overseas shipments have declined because of a fall in global consumption.

“We also suggested that the government should give export tax rebates to steel products immediately,” given that the country’s steel exports have dropped dramatically in the past few months, he said, without specifying any range.

China raised export tax rebates for some steel products since April 1, but no details are available on the size of the increase.

Mr Luo also said that imported steel products have had a “tremendous impact” on the local industry, and the CISA is closely watching the situation for any anti-dumping activities.

Iron ore inventories at local ports increased to 70 million tonnes in March, more than double than the normal level of 30 million tonnes

“But April iron ore imports won’t be as high as those in March,” Mr Luo said.

“One thing that is certain is that domestic iron ore demand will drop dramatically this year, and we expect iron ore imports in 2009 could fall below last year’s levels.”

Source: The Australian