Xinhua News Agency cited Mr Luo Bingsheng vice chairman of China Iron & Steel Association at a media briefing earlier this week as saying that steelmakers can approach iron ore miners for supply at a provisional price to maintain steel production. Though Baosteel, representing China steel industry is still struggling to reach an agreement with the three ore giants, individual negotiations by steelmakers have flagged what could be the death of the traditional iron ore benchmark pricing system.
According to industry analysts, price talks in recent two years eyed promising starts yet unsatisfying ends. Despite miners' prominent advantages, China should also learn a lesson.
1. Price talk tactic should change with the times and postponement is not a good idea. Miners asked for a 15% to 20% rise in 2009 end, pushed for a 30% to 40% in this year beginning and now stick to a 90% to 100% increase.
An industry analyst said "In the year beginning there was a forecast that iron ore market will be dominated by suppliers this year. The miners cautiously checked the views of buyers in the beginning, and are increasingly confident in asking for a price rise as global steel industry recovers. From this aspect, the earlier the talk ends, the better the result will be."
Mr Jia Liangqun deputy general manager of Mysteel said "Recovering overseas steelmakers and increasing iron ore demand have undermined China position in iron ore price talk. The strategy should change with the times, and it is acceptable to follow the quarterly price agreed by Japanese and South Korean mills."
2. The price talk should be based on the situation of enterprises rather than pressure from the public opinion. Both Baosteel and CISA have borne heavy public pressure.
Mr Jia said "China's steel industry is a big industry, and involves various benefits. No matter who is the representative, it's hard to please all. He said that iron ore price talk should be based on the market and enterprises.”
An insider said "CISA's words can be seen as a compromise. But compared with the hardline in last year, the compromise conforms to reality since business negotiations can end in victory or failure."
A senior official with a Jiangsu-based steelmaker revealed that CISA once called for import control to boycott price hike, which was of little avail. He said that "Situations in different mills vary. Out inventories can maintain production until June and July but some mills that witness low inventories can only ink supply contracts at provisional prices, thus CISA acquiescence is just the retroactive recognition of the facts."
3. China should actively cope with the new mode in iron ore market. Mr Luo said at the media briefing that the three miners are now controlled by financial capital, which pursues maximum profits.
In fact as the quarterly pricing becomes accomplished fact, the trend can be seen that iron ore price will more rely on spot market, which provides a good opportunity for the initiation of iron ore price indices and derivative contracts.