It is reported that a board member of China largest steel maker, Baosteel, predicts demand for steel and consequently iron ore will continue to slow for the rest of the year due to softening in the construction and automotive industries worldwide.
Describing the relationship between Chinese steel makers and iron ore suppliers such as BHP Billiton, Rio Tinto and Brazil Vale as love hate, Baosteel Mr Edward Tse told Business Day that China had largely accepted a move away from the decades old benchmark pricing of iron ore, something that the country had long resisted but that was rammed through by those on the supply side most prominently BHP Mr Marius Kloppers.
Dr Tse who is in Australia as chairman of global consultants Booz & Company and to promote his new book “The China Strategy” said China had recognized benefits of switching to shorter term contracts of iron ore.
He said that ''''Clearly the Chinese steel-making industry has had somewhat of a love-hate relationship with suppliers, some of which are here in Australia and one big one in Brazil. The revision of the pricing mechanism earlier this year has received a lot of attention on the Chinese side.”
He added that ''''But the Chinese has dealt with it quite professionally and they recognize that the pricing mechanism that we have right now has a lot of good points and is not all bad.''''
Dr Tse said he felt that relations between China and Australia were as strong as ever and had not been damaged by Chinalco abortive bid for Rio or the arrest and sentencing of Australian Mr Stern Hu and three of his Rio iron ore colleagues.
He said that ''''I can''t see a lot of so called damage. The Chinese are pretty pragmatic. They have been trying to make investments in all corners of the world and are still relatively new to this game.”
He added that ''''In the Chinalco case with Rio Tinto, yes, that didn''t work out but I think the Chinese are learning that''s part of the game. The Chinese can''t dictate everything, every situation is different. Sometimes the Chinese can make it happen and sometimes they can''t.''''
Dr Tse said he believed iron ore producers, including BHP and Rio, would experience a drop in demand for their product. He said that ''''There is a lot of production capacity of steel in China and a lot of this was driven by the steel makers in China expecting the consumption of steel to be positive so everyone is still investing in capacity.''
He added that ''''But speaking overall I think there are some concerns about capacity on the whole. ''Already we have seen a slowdown of two of the major sectors that are using steel, the construction sector and the automotive sector.''''