Tags: AS | China | Iron | Ore

China Steelmakers Move to Tighten Grip on Iron Ore Prices

Friday, 02 Apr 2010 09:11 AM

 

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A state-affiliated industry group vowed Friday to tighten control over iron ore trading as Chinese steelmakers discussed strategy for contentious price talks with global miners — the backdrop to last month's commercial spying and bribery convictions of four Rio Tinto employees.

The China Iron & Steel Association gathered representatives of major mills at a meeting Friday and affirmed its determination to control the iron ore trade, according to Xu Xiangchun, chief analyst at mysteel.com, a Web site that follows the industry. The meeting also was reported by Chinese media.

Beijing has been trying through CISA to use China's status as the world's biggest steel producer to force global iron ore suppliers to cut prices at a time of intense demand. It pressed in vain last year for a deeper price cut than those agreed to with Japanese and Korean mills.

Three major miners, Vale, BHP Billiton Ltd. and Rio Tinto control about two-thirds of global iron ore trading. They have reached agreements with some major mills, primarily in Asia, to set prices on a quarterly basis instead of annually, which will give them more pricing flexibility.

On Thursday, Brazil's Vale, the world's largest iron ore miner, announced it has reached new agreements with most of its clients "based on short-term market references and price changes on a quarterly basis."

Chinese and European steelmakers oppose the shift, which so far reportedly has led to price increases of 80 percent to 100 percent. China has fought to retain annual arrangements, hoping that would give it more leverage over prices.

CISA declined comment on the issue Friday.

A Chinese court sentenced four Rio employees to prison last month on charges of commercial spying and taking bribes. Industry analysts have suggested the investigation that led to their arrest might have begun as part of government efforts to tighten control over China's sprawling steel industry and the release of sales and production data that might help foreign miners in price talks.

China's iron ore imports soared nearly 42 percent in 2009 from a year earlier to 630 million tons. Analysts say traders were building up stockpiles in anticipation of the collapse of annual contracts and sharply higher prices this year.

The government has protested that soaring costs are hurting steel mill profits and is seeking to prevent traders from pushing prices still higher as mills compete for limited iron ore supplies.

The chairman of one of China's leading steel mills, Shanghai-based Baosteel Group, resigned this week from its publicly traded unit, Baoshan Iron & Steel. Baosteel represented China's steel industry in price talks in previous years but it was unclear whether Xu Lejiang's resignation was linked to the talks.

Xu's successor as chairman, He Wenbo, told shareholders at Baosteel's annual meeting Thursday that the talks were "very tough."

"The long-term contract will be more helpful to reach the win-to-win for both steel industry and the miner. I hope the miners will think of their long-term interests," He said, according to Tao Yun, an official of Baosteel's investor relations department.

Chinese steelmakers have also stepped up efforts to find new iron ore sources and boost domestic production.

China's biggest domestic iron ore miner, a subsidiary of steelmaker Angang Group, plans to spend 14.7 billion yuan ($2.2 billion) to double its annual output in the next decade, the official Xinhua News Agency reported. It said the miner now produces 45 million tons of ore a year.

European steelmakers have reacted angrily to the new pricing system and are pushing for a European Union antitrust probe of the three major suppliers. European automakers and engineering companies also say higher iron ore costs could harm their businesses.


© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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