It is reported that most Chinese steelmakers have to face a tough situation in the third quarter as they have no choice but to afford higher contract prices compared with prices in spot market despite dull demand.
Inventive monopoly has enabled the three iron ore giants to shift since Q2 of this year from annual benchmark price system to quarterly pricing, which is based on average spot prices in the previous quarter, miners thus ask for a price rise of about 20% for Q3 as spot price kept increasing in the past quarter.
However, spot price for iron ore starts to decline recently encumbered by weak demand and price for steel products. 63.5% Indian ore fine price has dropped notably to USD 135 per tonne much lower than contract price for Q3.
The situation is similar to that in 2008, when many steelmakers dishonored long-term contracts and turned to spot market. But this time it seems steelmakers have no choice. Another breach of contracts may incur blame and even threat of supply suspension.
Baosteel senior officials revealed yesterday that iron ore price for Q3 has not been set yet and the price might come out in late July or early August signaling China''s top listed steelmakers will not abandon long term contracts.
According to industry analysts, big steelmakers will make compromise so as to maintain long term cooperation relationship with miners as usually contract price stays lower than spot price.