Iron Ore Negotiations Kick Off in Asia as CISA Shuns Media

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China’s steel mills led by Baosteel and the iron ore producers of Australia and Brazil are finally locking horns to establish the 2010 benchmark prices for iron ore. Rio has started talks with Japanese and Korean mills and demanded a 40% increase over 2009 prices.  The Australians bullish stance is largely as a result of the strong spot price which has been up to US$135/metric ton for 62% Fe fines, but the benchmark negotiations frequently drag on for months and recently the market has not been as strong. Granted the Chinese New Year is upon us but prior to the New Year, the mills usually buy heavily to carry them through the holiday period you cant stop and start blast furnaces every time you have a short public holiday. Even so, SteelHome.cn advises imports have been low and much of the buying has been from domestic sources. The site reports prices have eased slightly to RMB 900-950/metric ton ($135/ton) down about $4/ton on the week, continuing a trend from last month where domestic concentrate prices have been gradually easing.

CISA the China Iron and Steel Association which has been sidelined in this year’s negotiations in favor of Baosteel the country’s largest producer, could not resist making both recommendations for the new round of talks and laying the blame on why last year was such a debacle. According to a Reuters report, CISA said the media are partly at fault for last year’s failed negotiations because they reported on the discussions instead of keeping quiet and letting the parties get on with it conveniently forgetting that CISA briefed the media as readily as the mining companies. The organization also said there should be no difference between spot and benchmark prices, effectively suggesting the miners should agree a benchmark tonnage and then sell spot shipments at the same price.  Last, they urged steel mills to not buy imported iron ore but to use domestic material even though the quality is lower but the price is the same as imported material. Apparently about 50-55% of 2009 imports were at the old benchmark price, the balance at spot, and China imported 86 million tons more than they used representing something over a month’s supply, which could explain why purchases have dropped off ahead of the New Year.

According to shipping bookings reported in another Reuters article, imports in January were some 8.34 million tons, up from 7.97 million in December and 6.27 million in November.  China’s media may be pressured to not report on proceedings but that won’t stop observers elsewhere from having their say. The problem is if the Chinese refuse to give their side of the story the international media will just report the miners side.  Irritating as it no doubt is having the world look over your shoulder when you are dealing in such vast numbers and the fate of the world steel industry is at the least influenced by your actions, CISA cannot expect the media to not show an interest.

–Stuart Burns

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