Iron ore price negotiationsIt will be interesting to see what the iron ore contracts end up at this year...
Wednesday, 15 Apr 2009
Iron ore price negotiations - High imports to favor miners
It is reported that China's iron ore import soarsto new high in three consecutive months just playing in the hand ofoverseas mining giants. Iron ore talk reaches an impasse apparently,but foreign miners' secret advancing plan starting from last year endhas taken effect.
Rio Tinto and the other big miners have cast a wide net to enlargesales volume and areas from the end of last year. They provide iron oredirectly to domestic traders and small and medium sized mills,continuously dragging up China's iron ore import to historical high. Itis expected that the global iron ore import this year may exceed thatin 2008, and 80% seaborne iron ore would go to China.
An analyst from Sinosteel Corporation said "Even the total contractedquantity remains low, but big enough to push China's mills at adisadvantage position. Meanwhile, surging import also signals thatChina's demand is huge and current price has bottomed out, which willbolster iron miners' expectations."
An unidentified insider said "We should not blame home mills that havesigned contracts but should reform our iron ore trade system."
In recent years, domestic licensed iron ore importers have been reducedconstantly. The numbers once reached to 500 in 2005 but were trimmed to118 in 2006 and decreased another 6 in 2007. At present, there are onlyabout 70 licensed steelmakers and 30 traders left.
Currently, domestic spot iron ore import has definitely exceededlong-term goods, and demand keeps mounting. It wouldn't keep iron oreimport in order but encourage licensed firms' action. They import ironore at long term price that not for their own use but resold toenterprises without import license. Some even hoard goods and resell athigh prices to medium or small sized mills for speculative profits. Itis also the main reason for 60 million tonnes stock at ports.
Flying direct iron ore import for self-use will result in moredependence on foreign iron ore in China. It is roughly estimated thatsteelmakers axed home made purchase from 60% to 30% in the past 6months, which means nearly 70% of China' s iron output capacity areclosed. It is of course the great news to Three-Big miners who arestruggling with global financial crisis. Even USD 60 per tonne theywill reap extravagant profits compared with USD 24.7 per tonne ofproduction cost, let along sputtering transactions.
(Source: Securities Times)