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Vale risks losing China market over unexpected price hike

(Xinhua)
Updated: 2008-09-29 10:20

Zhang Junsheng, a foreign trade expert with the Beijing-based University of International Business and Economics, said Vale's decision to increase prices was unreasonable given the previous agreement with Chinese steelmakers.

"Vale raised prices unilaterally, which breaks international trade rules and breaches the supply contract," Zhang said.

Who will win?

In response to the CISA's announcement, Vale's CEO Roger Agnelli said China's steel industry could face a serious crisis if Vale stops iron ore shipments to China.

He said price talks with Chinese clients were ongoing.

As the world's largest iron ore producer and exporter, the Rio de Janeiro-based company took up 80 percent of Brazil's iron ore production. Chinese iron and steel enterprises imported 270 million tons of iron ore in the first eight months this year, of which 22 percent came from Brazil.

As the stalemate on prices held, Chinese analysts said a shipment stop was not expected to cause a major impact on the country's steel industry.

"Current decline in domestic demand has helped build up a reserve of iron ore. The current storage could keep steel makers running for at least three months," said Umetal analyst Zhang Ping.

Li Xinchuang, vice director of the China Metallurgy Industry Planning Research Institute, maintained that Chinese companies were able to move on without Vale's iron ore. "With 600 million tons of raw iron produced annually, it was possible to replace Brazilian products with domestic supply," he said.

Zhang, of the University of International Business and Economics, said Chinese companies have also begun to explore other overseas resources as alternatives to Brazilian mines.

"Continents such as Australia, Africa and South America are all rich in iron mines," said Zhang. He added that China had started exploring multiple channels for iron ore imports since the 1990s.

"Losing one supplier would not much affect our overall imports."

In August, China Metallurgical Group, one of the country's largest steelmakers, reached an agreement with Russia's leading iron company, Evraz Group, to jointly work on an iron mine project in Australia.

Sinosteel, China's second biggest iron-ore trading company, plans to complete its take over of Australia's Midwest Corp mid September.

Under current conditions, Vale's latest move is not likely to force Chiese steel makers into signing another price increase agreement this year, according to Umetal's Du Wei.

"I think we are quite determined on the Vale issue," she stressed.

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