The benchmark pricing system that has governed the global iron ore trade for 40 years is likely to unravel at midnight tonight. Insiders say Australian miners and Chinese steel makers are miles away from sealing a last-minute deal.
The Herald understands that China's lead negotiators, the Chinese Iron & Steel Association and Baosteel, have scheduled no negotiations today despite a large proportion of long-term contracts due to expire. [NB See - Rio Still In Talks with Chinese Steel Mills]
Relations have been so strained that there have been no substantial talks at all in the past fortnight, despite recent reports to the contrary.
"Last year everything happened at the last moment but there is no sign of any movement at all this time around," said one negotiating insider. "I don't think anything will happen [today]."
The negotiations have never before been strung out to this late stage.
Steel makers in Japan, Korea and other nations outside China agreed last month to a 33 per cent cut in the benchmark contract price.
The miners, led by Rio Tinto, have demanded that Chinese steel mills accept the same.
But CISA has demanded a 40 per cent cut, despite spot market prices rising 15 per cent since April and above the new Japanese benchmark price.
China has become the dominant iron ore buyer as steel makers elsewhere have shut their blast furnaces since the global financial crisis. It accounts for more than three-quarters of global seaborne trade so far this year.
Ore contracts vary depending on when and with whom they were set, with some not due to expire until September 30.
But the Herald understands that a large proportion of the multi-year supply contracts will automatically expire tonight, leaving Rio, BHP and other miners in uncharted territory.
The Australian miners hope to realise a long-term strategic objective of selling directly on to the spot price or to an index that tracks the spot market.
This would eliminate the freight subsidy paid by north-east Asian mills to Brazil's Vale (because spot sales are priced after freight costs).
The Chinese steel association has threatened to ban Australian imports and rely on stockpiles, domestic production and imports from other nations if a deal is not reached today.
The miners hope to split the Chinese industry so that mills ignore their industry association and buy Australian ore on the spot market or under new individual benchmark contracts.
Source: Sydney Morning Herald
No comments:
Post a Comment