Steelmakers face tough talks on iron ore prices
Mainland firms fail to strike deal with big three suppliers
China's steelmakers are a long way from reaching agreement with the three big suppliers of iron ore and weeks of tough talks lie ahead.
On Tuesday, the mainland's 16 biggest producers ended their third round of talks, lasting five days, with BHP Billiton and Rio Tinto Group of Australia and Brazil's Companhia Vale do Rio Doce with no substantive progress and no consensus reached, newspapers reported yesterday.
One industry analyst said that neither side had a key reason to settle and each was hoping that the market would move in their favour.
Talks between suppliers and steelmakers in Europe and Japan are also deadlocked.
At the talks, the Chinese side argued that suppliers of ore were ample this year and growth in demand was slowing. The Chinese steel industry was in a period of restructuring, the room for profit was narrowing and pressure on costs was rising. If ore prices rose again, then Chinese steelmakers could not accept it, they said.
For their part, the big three said that demand in China remained strong this year and supply was tight, so prices should rise.
China is determined to avoid a repetition of last year, when companies were forced to accept a rise of 71.5 per cent in ore prices, which raised production costs per tonne and cut a substantial part of their profit margins.
Last year, China imported 275 million tonnes of iron ore, an increase of 32.3 per cent from 2004 and accounting for 43 per cent of ore shipments.
Last week, the Ministry of Commerce said that Chinese steel companies should play a key role in setting global prices.
Luo Bingsheng, president of the China Iron and Steel Industry Association, said that, as the biggest importer in the world, China should have a decisive say in this round of talks.
In an attempt to present a united front, the association held its first working conference with the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters, the other main importer of iron ore, on February 15.
The two asked Chinese steelmakers not to sign individual deals with foreign suppliers or make long-term agreements at spot prices.
In an analysis published on Monday, the association forecast this year's crude steel output at 384 million tonnes, an increase of 35 million over last year and steel output at 408 million tonnes for the year, an increase of 37 million. 'It could be slightly higher but not by much,' it said.
The association forecast domestic consumption at 369.1 million tonnes this year, an increase of 42.38 million tonnes over last year, based on a survey of the eight main industry users including construction, machinery, cars and shipbuilding.
It said that steel prices hit bottom in the second half of last year but were recovering. With the building season now on 'demand is picking up. This is the main reason for the increase in prices.'
