China Talk Chills Steelmakers

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Mar 2009

Shares of the world's three big iron-ore miners slumped on Monday after a Chinese official claimed steel mills in his country have wrested a 40.0% price cut from them. One of the miners denied the assertion, while the other two would not comment, but shares of the trio fell more sharply than the overall market.
China’s largest steel maker Baoshan Iron and Steel, which represents Chinese steel mills in annual iron-ore price talks, said the China Iron and Steel Association demanded that iron ore prices be reduced to 2007- 2008 levels. That would mean a 40.0% cut from the price settled last year of $91 a ton. President Fu Zhongzhe of Baosteel said that Chinese steelmakers’ profits were hurt by high iron ore costs and falling steel prices in the second half of last year.
The price cut is seen as a temporary measure, retroactive to January, until an annual contract is agreed.
A spokeswoman for Vale, the big Brazilian miner, said she has no knowledge of a price cut. “Vale hasn’t made any deal under the mentioned conditions,” she said. “There was no change in Vale’s position concerning price negotiations.”
A BHP Billiton spokesman said that the company will not comment until the benchmark iron ore price has been agreed upon.
Beijing is targeting 8.0% economic growth this year, with a lift from a 4.0 trillion yuan ($585.3 billion) stimulus program and other measures. It would be reasonable to assume that the spending includes the kind of infrastructure development that requires lots of raw materials, iron ore among them, but if prices are going to fall 40.0%, then investors may have to revise their demand outlooks.
China began informal negotiations with iron ore producers Vale, BHP Billiton and Rio Tinto in December, pressuring the companies to accept hefty price cuts. China wants to pay iron prices that are in line with what it will get for the steel into which it turns the ore.
Around November each year, each of the three big iron-ore miners holds closed-door talks with the world's main steel-producing regions, each of which is represented by a single steelmaker, to negotiate a single contract price. China is the world's biggest steel producer and consumer.
BHP's American depositary receipts sank 6.5%, or $2.63, to $37.79, on Monday, while Rio Tinto slid 7.3%, or $8.14, to $133.00. Vale fell 7.3%, or $1.03, to $13.05, on a day the Dow Jones industrial average lost only 3.3%.

Source: Reuters