Rio Tinto proposed to cut latest iron ore contract price by 20%, some foreign reports said yesterday. But China Iron & Steel Association has clearly objected to this proposal and noted the price cut is too small.
CISA has also disclosed that it has urged Chinese steelmakers to prepay 60% of 2008 contract price for the imported iron ore to be delivered this year before CISA and overseas iron ore giants reach an agreement on the price.
Foreign reports said that Two officials with Rio said that the miner had provided a provisional price cut of 20% from 2008 level as contract price for the new year had not been agreed, but some Chinese steelmakers thought the cut was too small to accept.
Insiders point out Rio"s proposal indicates its recognition of a price drop for long-term contract price in 2009. But the price cut is different with CISA"s expectation.
Mr Shan Shanghua secretary general of CISA of revealed earlier that iron ore contract price in this year should go in line with steel price trend and should fall on the basis of 2007 level, which means, China requests a price cut of 40% at least.
Mr Shan said that as April 1st 2009, the beginning of new contract, has passed, CISA now asks steelmakers to make advance payments of 60% of 2008 contract price. Rio"s 20% price cut is impossible to be accepted. "Even spot price is now lower than 60% of long-term contract price in 2008."
A senior official with Valin Iron & Steel Group revealed the steelmaker now settles price with overseas miners according to spot market and price for every shipment varies. Another large-scale domestic steelmaker disclosed it now imports the material at a discount of 20% to 30% from 2008 level.
As the opinion differences on price decrement still continue, there is no sign of an agreement on iron ore benchmark price. Citibank even forecasted in its report on Apr 3 that the agreement may be reached after four months.
In view of worldwide steel output cutback and current spot iron ore market, FMG expected 2009 benchmark price to fall 30%, said Graeme Rowley, executive director of FMG group recently. Mr Ravi Kastia president & GM of India"s Essel Mining, predicted that iron ore benchmark price in this year would decline 40% and spot price would be 5% to 10% lower than contract price.
On the other hand, BHP is not anxious to reach an agreement and still hope to chase an index pricing.
Iron ore price in spot market has slumped. On Mar 27 price of 66% iron ore acid dry basis had tumbled some 57% from the peak in Jun of last year. CIF price for 63.5% Indian iron ore had also dived 70% to USD 60 to USD 62 per tonne from USD 205 per tonne in 2007 end. As a result, contract price in 2009 has every reason to fall significantly.
Declining imported iron ore price has eroded the advantages of domestic iron ore miners. Due to collapsing freight rates, spot price for imported iron ore now stands much lower than that for home ore, hence steelmakers increasingly rely on imported resources. Against such a backdrop, China"s iron ore imports in Feb rose 23% from last year to a new record of 46.8 million tons despite falling outputs of steel products.