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Steel firms urge price fairness

By Wang Lan (China Daily)
Updated: 2008-10-24 09:56

Taking the initiative in the 2009 iron ore price negotiations, Chinese steelmakers are demanding a unified benchmark import price to eliminate the gap between the spot price from India and the contract price from Brazilian and Australian suppliers, the head of the Chinese industry body said yesterday.

"We must seek one unified import price, which will help stabilize production and bring iron ore prices back to a reasonable level," Shan Shanghua, secretary-general of China Iron and Steel Association, told the 8th China International Steel and Raw Material Conference in Qingdao, attended by leading global iron ore suppliers and most domestic steel producers.

Compared with the current spot prices on imports from India, Chinese steelmakers were charged 18 to 23 percent more for iron ore from Australia and Brazil based on the long-term contract price.

Shan predicted that the 2009 negotiations will be tougher than the previous year's session because of the fast changing market situation and global economic uncertainty. "All parties need to sit and talk calmly and work out a solution," he said.

Liang Shuhe, deputy director of foreign trade at the Ministry of Commerce, said: "A number of developments have indicated a surplus of iron ore on the world market. These include much lower spot prices than contract prices, and lower domestic prices than imported prices."

Industry experts said the oversupply situation came much earlier than the previous forecast of 2010.

Shan said that the irrational price surge in imported iron ore during the past few years had led to an excessive expansion in mining. The fall in demand, especially from China, is sending a chill down the spines of iron ore producers around the world.

By 2010, global iron ore production will jump by a further 30 to 40 percent from the current level due to its over-expansion.

Meanwhile, in China, a drop in the price of downstream products plus previously imported iron ore at much higher contract prices than spot prices has combined to erode steelmakers' earnings and forced many of them cut back.

"The impact of weak production in China has been quickly passed back to global miners," said Shan. "The earlier projected increase of 43 million tons in China's iron ore demand in 2008 is not going to be realized."

In contrast, it is estimated that 80 million tons of iron ore is set to idle at Chinese seaports.

"Some Chinese steelmakers will need no more imports in the following six months, they could just live on the stock sitting at ports," Shan said, adding that iron ore prices would continue their downward spiral on the high inventory and shrinking demand.