Kauri
E/W Learner
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Re: MGX
China, miners headed for price showdown
November 23, 2005 - 9:11PM
Iron ore miners and Chinese steel mills are headed for a showdown over annual price negotiations with China tipped to demand lower iron ore prices.
Many Chinese steel mills are struggling to hold their heads above water after this year's 71.5 per cent increase in the benchmark price of iron ore, according to China's biggest steel maker Baosteel.
The big three iron ore miners, Australia's BHP Billiton and Rio Tinto and Brazil's CVRD, negotiate annually with Chinese and Japanese steel mills to secure benchmark prices, which will be settled early in 2006.
Japan traditionally sets its benchmark prices first and AME Mineral Economics associate director Dallas Horadam is tipping Japanese mills will agree on a higher price for iron ore supply.
"AME forecasts a 20 per cent price rise for fines (iron ore) in Japanese financial year 2006," Mr Horadam said.
"It depends on how negotiations go but there are a lot of potential different outcomes."
However industry consultancy Caiani & Co director Carlo Caiani believed China, which has now overtaken Japan as the world's largest importer of iron ore, would not agree to higher prices and was instead pushing for a price reduction.
He said as China grew its own domestic iron ore production it had more bargaining power with the big three miners.
"We firmly believe that they are gearing up for one of the hottest, contested, iron ore price negotiations we have seen in a long while," Mr Caiani said at the Asia Pacific Iron Ore Conference.
"They will increase their own production because at crazy prices like we have today it is actually cheaper for them to produce their own."
Major Chinese steel mills were still angry at BHP Billiton which tried to secure an additional 10 per cent increase on top of the 71.5 per cent hike earlier this year, he said.
BHP Billiton pushed for higher prices to bring it into line with the price of other countries' iron ore, which included higher freight costs.
Mr Caiani said he expected BHP Billiton would again push for the freight differential rate, but thought they would not get it.
"We are predicting a 20 per cent reduction in iron ore prices this year," he said.
Instead he tipped China would import more ore from Brazil, India and Russia, reducing its intake from Australia.
AME's Mr Horadam said the Chinese market was over-supplied currently but overall the market remained tight.
Ding Shouhu, the deputy general manager of the raw materials department at China's largest steel mill Baosteel, said steel output had now overtaken demand in China.
Mr Ding expected a lower growth rate in consumption in 2006 but the fast growing real estate and construction sectors would continue to increase steel use.
© 2005 AAP
China, miners headed for price showdown
November 23, 2005 - 9:11PM
Iron ore miners and Chinese steel mills are headed for a showdown over annual price negotiations with China tipped to demand lower iron ore prices.
Many Chinese steel mills are struggling to hold their heads above water after this year's 71.5 per cent increase in the benchmark price of iron ore, according to China's biggest steel maker Baosteel.
The big three iron ore miners, Australia's BHP Billiton and Rio Tinto and Brazil's CVRD, negotiate annually with Chinese and Japanese steel mills to secure benchmark prices, which will be settled early in 2006.
Japan traditionally sets its benchmark prices first and AME Mineral Economics associate director Dallas Horadam is tipping Japanese mills will agree on a higher price for iron ore supply.
"AME forecasts a 20 per cent price rise for fines (iron ore) in Japanese financial year 2006," Mr Horadam said.
"It depends on how negotiations go but there are a lot of potential different outcomes."
However industry consultancy Caiani & Co director Carlo Caiani believed China, which has now overtaken Japan as the world's largest importer of iron ore, would not agree to higher prices and was instead pushing for a price reduction.
He said as China grew its own domestic iron ore production it had more bargaining power with the big three miners.
"We firmly believe that they are gearing up for one of the hottest, contested, iron ore price negotiations we have seen in a long while," Mr Caiani said at the Asia Pacific Iron Ore Conference.
"They will increase their own production because at crazy prices like we have today it is actually cheaper for them to produce their own."
Major Chinese steel mills were still angry at BHP Billiton which tried to secure an additional 10 per cent increase on top of the 71.5 per cent hike earlier this year, he said.
BHP Billiton pushed for higher prices to bring it into line with the price of other countries' iron ore, which included higher freight costs.
Mr Caiani said he expected BHP Billiton would again push for the freight differential rate, but thought they would not get it.
"We are predicting a 20 per cent reduction in iron ore prices this year," he said.
Instead he tipped China would import more ore from Brazil, India and Russia, reducing its intake from Australia.
AME's Mr Horadam said the Chinese market was over-supplied currently but overall the market remained tight.
Ding Shouhu, the deputy general manager of the raw materials department at China's largest steel mill Baosteel, said steel output had now overtaken demand in China.
Mr Ding expected a lower growth rate in consumption in 2006 but the fast growing real estate and construction sectors would continue to increase steel use.
© 2005 AAP