Bloomberg reported that the China Iron & Steel Association will ask steelmakers to agree on a purchasing price for spot iron ore to avoid a bidding war, should long-term contract talks fail with the world’s largest suppliers.
Mr Shan Shanghua General Secretary said auctions of iron ore on the spot market set speculative prices. The association is seeking to stop Chinese mills and traders from taking part in auctions now.
China Minmetals Corp said China, the world’s biggest buyer of iron ore, has rejected a 33% price cut accord struck by Rio Tinto Group and Nippon Steel Corp and called for contract prices to drop as much as 45%. Talks between Chinese mills and suppliers are deadlocked.
Mr Shan said “If the contract price talks fail, there should be a guide price for spot ore. Mills shouldn’t negotiate individually on spot prices. Steelmakers should also agree on how often they set prices.”
Mr Hu Kai a Shanghai-based analyst with Umetal Research Institute said “Setting one spot price is absolutely impossible. A free spot market won’t follow a single price. Actually miners and many mills are happy with the spot trading now. He said that China may agree to a 33% price cut with possible revisions in later quarters. Or Rio Tinto may agree to a price cut bigger than 33% also on a quarterly basis.”
Mr Shan said the steel association also wouldn’t agree to the 28% price cut agreed between Brazil’s Vale SA, the world’s largest iron ore supplier and Japanese and Korean mills. He said that the association this year replaced Baosteel Group Corp, China’s biggest mill as the key negotiator in price talks. London-based Rio is the second-largest supplier of iron ore and BHP Billiton Ltd is the third-biggest.
Mr Shan said “Baosteel is not negotiating iron ore prices for itself as it did in previous years. It is commissioned by the steel association to take part in the talks this year. He said that China is still open for contract price talks with any of the suppliers, though it still won’t accept just a 33% price cut. He met Vale Executive Director Mr Jose Carlos Martins on June 16th and with Fortescue Metals Group Ltd. Executive Director Mr Russell Scrimshaw yesterday.
He added that a proposed meeting with Rio Tinto’s iron ore negotiator didn’t happen this week in China because of a timing clash with the Fortescue meeting. Perth-based Fortescue is Australia’s third-largest iron ore exporter after Rio and BHP.
Some steelmakers in China’s Shanxi province have signed long term supply contracts with the three biggest miners. The mills denied that they have agreed to a 33% price cut.