Leading Chinese steel maker Baosteel (600019.SS: Quote) is still negotiating with global miners on the price of iron ore in the fourth quarter, the company''s chief financial officer said on Monday.
Brazil''s Vale (VALE5.SA: Quote), the world''s biggest iron ore producer, said it would cut prices by 10 percent in the last three months of the year according to the rules of a new quarterly mechanism. [ID:nN27247959]
"The talks are still ongoing," Baosteel''s Chen Ying said during an online shareholder conference.
She said Chinese steel mills had not yet come to a final pricing settlement with Vale or Australian producers Rio Tinto (RIO.AX: Quote) and BHP Billiton (BHP.AX: Quote)(BLT.L: Quote), but said that shipments in the third quarter were currently being priced on a "temporary" basis.
"The company believes a quarterly price mechanism set according to indexes should be agreed by both the buyers and the sellers, and a specific price setting mode needs further agreement from the two sides," she said.
Baosteel''s total iron ore costs rose 32 percent in the first half of the year and Chen said they would remain at a high level in the second half.
Chinese steel prices are still under pressure as a result of slowing domestic demand as well as the collapse of foreign sales following the cancellation of export tax rebates, Baosteel general manager Ma Guoqiang said at the same conference.
He said government policies aimed at restructuring both the steel sector and the economy as a whole were having an impact on steel demand.
"There are still many uncertainties in economic trends, in downstream demand and even in imported iron ore prices in the second half, especially in the fourth quarter, and the possibility still exists that prices will weaken still further," he said.
But he added that Baosteel''s profits were expected to remain intact in the third quarter, despite the pressures.
The company''s second quarter profits surged sevenfold year on year to 4.12 billion yuan ($606.1 million), it said last week. [ID:nTOE67O03E]
Baosteel said earlier this month that it would keep the prices of its major products unchanged in September, though analysts suggested that discounts to major customers would be removed.
Other mills, including Wuhan Iron and Steel (600005.SS: Quote) and the Anshan Iron and Steel Group (0347.HK: Quote)(000898.SZ: Quote), said they would raise prices for September delivery by 350-1,000 yuan per tonne in anticipation of a revival in demand. [ID:nTOE67G00X]
Spot prices began to recover in early August but have since fallen back, with construction steel prices in Shanghai dropping by 2 percent to 3,880 yuan per tonne last week.