According to an insider from a large steel enterprise in Jiangsu on May 19th evening, “We haven’t received iron ore quote for third quarter from the three mining companies and negotiation will begin next month if needed, but steel enterprises will not agree three mining companies to raise iron ore price again.”
There is already news that the three mining companies Rio Tinto, CVRD and BHP Billiton plan to raise iron ore quote for third quarter to USD 160 per tonne in the new round of iron ore price negotiations beginning in the end of this month. And this offer is based on the average spot price of March April and May.
The insider said “we haven’t negotiated with CVRD about iron ore price for the third quarter nether the other two mining companies but we are going to have a discussion in June. Chinese steel mills can not afford price of USD 160 per tonne because according to current steel prices there is certainly a substantial loss. Assuming price of plate is around CNY 4000 per tonne however only the cost of iron ore might by as high as CNY 2000 per tonne.”
A person from Wugang also said they haven’t received any price offer from CVRD. He said that “Chinese steel prices fell below CNY 4000 per tonne this week, dropped by 10% to 20% in total. There is no reason for iron ore price not to fall.”
Analysts said that if three mining companies raise the iron ore price to USD 160 per tonne steel mills have to choose to stop purchasing and cut production.
A person from a large steel mill said there has been some private small steel mills began to cut production because of high raw material costs. “Production only consumes iron ore inventories now. Once early inventories are used up by the end of June and if price of iron ore is still high and steel price is still low then steel mills is undoubtedly to stop production.”