China accepts ore hike, slams "out of rule" talks

fdpmpnjts

China accepts ore hike, slams "out of rule" talks
       
BEIJING - A Chinese steel association and a chamber of metals trade confirmed June 22 that China's steel mills have agreed to a 19% price hike for iron ore, while expressing regret that "negotiations breached rules."
A joint statement issued by the China Iron and Steel Association (CISA) and the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters expressed a "strong hope" that both sides make a joint research into and seek a reasonable solution to the out-of-rule behavior in the talks.
China's biggest steelmaker, Baosteel Group, which was representing other major Chinese steelmakers in the negotiations, reached an agreement Tuesday with Anglo-Australian miner BHP Billiton Ltd.
And similar agreements also were reached with Anglo-Australian miner Rio Tinto Group and Brazil's Companhia Vale do Rio Doce SA (CVRD). The details would be released later in the week, earlier media reports said.
The 19% price increase follows a 71.5% hike in iron ore prices in 2005. China's booming economy, which grew about 10% in each of the past three years, has to be fueled by large amounts of raw materials, such as iron ore, analysts acknowledge.
The association and chamber statement said the cost, insurance and freight (CIF) for Australian and Brazilian iron ores had a striking gap. "As the next step, both supply and demand sides should study a rational solution." In a move to "streamline the order of iron ore imports," the statement called on iron ore enterprises to speed up consolidation and turn spot transactions into long-term contracts in line with the international practice.
World importers and exporters should set up long-term, stable ties in the pursuit of joint development and a win-win result, it acknowledged. "Any acts which violate the principle are not the right choice, and the association and the chamber will go on striving for safeguarding the principle."
China has announced plans to cut back on production by substandard steelmakers, aiming to eliminate an annual 100 million tons of iron ore capacity and 55 million tons of steel capacity over the next five years. But government figures show that iron ore imports have been steadily rising to roughly 276 million tons in 2005 from 208 million tons in 2004 and 140 million tons in 2003.
CISA moots concentrating ore importers
China should increase the rate of concentration of iron ore importers and change spot transaction into long-term contract in line with international practice, said officials of the China Iron and Steel Association and the Chamber of Commerce for Chemicals Importers and Exporters under China Minmetal.
Many experts hold that the concentration rate of steel enterprises is low, leaving Chinese steel enterprises lacking experiences in negotiations. This, they claim, is the reason why China often loses out in iron ore price negotiations. China is now the world's largest steel producers as well as a large iron ore consumer, but has little say in the pricing of iron ore resources.
Based on the negotiations for iron ore price for 2006, Chinese steel enterprises have accepted a pellet price 3% lower than in 2005 and a module and powder ore price 19% higher than in 2005. Based on the 19% price hike, the CIF of iron ore from Brazil will be about US$65/ton; that from Australia, US$56-$58, almost equal to the US$60/ton spot price at present.
Ore miners urged to team with China to address problems
The industry further called on major iron ore miners to collaborate with the government to address problems remaining after prices for iron ore were agreed. "The negotiations on iron ore pricing have finished but relevant work is not yet finished," said a joint statement June 22 from the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters and the CISA.
"Negotiations for the 2006 long-term contract breached rules," the joint statement said, adding the two organizations "strongly hoped" Chinese users and foreign suppliers could find a feasible way to resolve the problem. Officials with the iron and steel association declined to explain in detail.
But the comment about breaching rules might refer to the fact that iron ore suppliers signed contracts with some minor steel producers separately, said Tian Shuhua, an analyst from China Galaxy Securities. Customarily, in negotiations for long-term contracts, the benchmark price is settled between the largest importer and major miners.
(Asia Pulse/XIC)