According to Mr Shan Shanghua, secretary general of China Iron & Steel Association, world's three biggest ore miners have rejected the price cut demanded by Chinese mills and are pushing for spot deals for the 2009-10 long term contracts. The move may lack long term strategic vision.
Mr Shan said "Only one price is to exist in Chinese market this year that is contract price.”
Mr Shan dismisses the impact of the ore index on either ore miners or steel mills.
He said that “Many Chinese mills are still losing money even if contract ore price drops to 2007 levels. That is to say 40% cut for Brazilian ore and 45% decline for Aussie ore for the least, as opposed to the 20% cut offered by ore miners.”
He said that Chinese mills will be forced to scale back production further if they have to accept insufficient price cut than they can afford, which would in turn harm the benefits of Big Three.
He said that “The final price should leave reasonable profit margin for both sides.”
He added that he would take back his earlier comments that Chinese mills won't accept benchmark price cut of 30% to 35% which might indicate softening stance of Chinese side.