A number of steelmakers in China's Shanxi province have signed 2009 long-term iron ore supply contracts with the three ore giants.
Mr Zhu Fengliang secretary general of Shanxi Iron & Steel Association said that several steelmakers have clinched 2009 supply contracts, but they have not reported the contract price to the association for reasons of confidentiality.
An insider disclosed that it is several steelmakers, including Jincheng Fusheng Steel, have inked the contracts. These steelmakers all boast annual capacity of over 1 million tonnes. This was later confirmed by an official from a Jinnan-based steelmaker.
The contract volume is smaller than that rumoured and and while the price has nor been disclosed sources suggest that the steelmakers did not accept a 33% price cut.
There are fears that the Shanxi mills may have embarrassed the ongoing tough price negotiations involving the China Iron And Steel Association and the big three iron ore miners, Rio Tinto, Vale and BHP.
Following Rio, Brazil's Vale also reached agreements with Japanese and South Korean steelmakers on 2009 iron ore supply. The price cut is far below what China Iron & Steel Association expected.
Analysts point out that iron ore oversupply enables ore giants to feed medium and small steelmakers in China, while the latter is glad to grasp an olive branch. This has heavily pressed CISA and major Chinese steelmakers.
Based on 2008 contract price, the cuts of 33% and 40% will bring a price gap of USD 6 per tonne and it seems the balance of the negotiation is shifting towards the overseas giants. CISA senior officials admitted "China's price talk is under a lot of pressure."
Mr Shan Shanghua CISA secretary general reiterated China would insist on a 40% cut and that it would not compromise. He noted that medium and small steelmakers have no right to sign long term contracts with Vale. The contracts, even if signed will still be invalid.
Source: China Times/Steel Guru
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