Chinese steel mills reject Rio's 33pc ore price cut

PUBLISHED : Monday, 01 June, 2009, 12:00am
UPDATED : Monday, 01 June, 2009, 12:00am

China Iron & Steel Association, the leading negotiator on behalf of the country's mills, yesterday formally rejected the 33 per cent decrease in this year's iron ore prices that Japanese and South Korean steelmakers had agreed with Rio Tinto Group.

'The price cut did not objectively reflect the real supply and demand situation in the international iron ore market,' the government-affiliated association said.

'Such a price [33 per cent cut for iron ore fines and 44.5 per cent cut for lump] would drive mainland steelmakers into losses.'

Overall, such a pricing deal did not represent a 'win-win' relationship between iron ore supplier and steelmakers, it added.

'Hence, Chinese steel companies cannot accept this price; we'll not proceed,' the association said, indicating it would not follow the Japanese and Korean steelmakers.

Last week, Rio, the world's second-largest iron ore exporter, was the first of the world's Big Three iron ore suppliers to strike a benchmark iron ore price. Competitors BHP Billiton of Australia and Brazil's Vale have yet to announce similar deals.

The decision was widely expected by the market, as the association had reached a preliminary agreement with steelmakers earlier that this year's iron ore price should drop at least 45 per cent.

It is hard to predict whether mainland steelmakers could succeed in getting a lower price, since market views are mixed.

China, which buys half of seaborne iron ore and is the only country where ore demand is growing amid the global downturn, would use its bargaining power to ask for a deeper discount, some analysts said.

But others said the chance of winning a bigger discount was not very great, given the monopolistic advantages of the three big iron ore suppliers, which control about 75 per cent of the seaborne iron ore trade.