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Steel lobby official takes tough stand on iron ore pricing talks

By Zhang Qi (China Daily)
Updated: 2009-07-24 08:04

China would rather give up on annual negotiations for iron ore pricing contracts than accept the 33-percent cut proposed by global miners, a key official with the steel industry lobby said yesterday, even as he confirmed that the latest round of talks would see some progress within the next 10 days.

"CISA has put the foot down and will not compromise on its stance. You will see the result in around 10 days," Li Xiaowei, vice-chairman of the China Iron and Steel Association (CISA) and chairman of the State-owned Hunan Valin Iron & Steel Group, said.

"We will ask for a better rate, otherwise we would rather give up on the annual negotiations for iron ore pricing," he told China Daily at an Australia-China investment forum.

"Supply and demand rely on each other like teeth and lips. Those who only chase monopoly and windfalls will eventually lose more," Dow Jones also quoted Li as telling reporters on the sidelines of the forum.

China, as the world's largest iron ore buyer, needed 450 million tons of iron ore annually, and should have the right to decide its price, he said.

Chinese media reported earlier that some major steel mills, including Baosteel and Hebei Iron and Steel Group, had agreed with Rio Tinto and BHP Billiton on a 33-percent cut in iron ore prices.

Li Qingyu, general manager of Baosteel Resources Co, said he was not informed about the deal, adding iron ore supply exceeded current demand.

Special Coverage: Iron Ore Price Talk Related readings:  Spot ore rates may determine steel lobby stance  New iron ore pricing plan soon  Steelmakers forecast gloom  China stops talks with Rio, turns to Vale: report  Rio Tinto scraps marriage with Chinalco  'Bribery is widespread' in Rio case

CISA rejected a 33-percent price reduction that Japanese and South Korean mills agreed to in May, and held out for a 40-percent cut.

The negotiations, which missed their June 30 deadline, became more uncertain after four employees of Rio Tinto were detained on charges of espionage just a few weeks earlier.

Steel analysts too believed CISA's stance was not pragmatic.

"After Japanese and Korean mills, even some Chinese steel mills have accepted the 33-percent discount. China's bargaining chips are falling," said Yan Song, a steel industry investment manager at Hao Capital.

He said China's steel industry was disadvantaged in annual iron ore negotiations due its low industry concentration.

The output of the top 10 Chinese steel mills stood at only 30 percent of its total steel output while the three global giant miners accounted for 70 percent of global iron ore trading.

"If China gives up on the negotiations and turns to the spot market, the profits of steel mills may fall," he said. "Since the prices of iron ore and shipment are fluctuating, and are most likely to go up, steel mills will see fluctuating profits."

The iron ore spot price rose 4.6 percent to $91 a ton last week, the highest since October last year, according to Metal Bulletin prices.