Bloomberg quoted Mysteel Research Institute said Cia Vale do Rio Doce, BHP Billiton Ltd and Rio Tinto Group, the three largest iron ore producers may engage in a discount competition in China because of an oversupply.
Analyst Mr Xu Xiangchun said iron ore sales to Europe and Japan by the three companies may drop by more than 100 million tonnes this year, forcing them to sell more to China should they not slash production. He said that “Cutting prices will be the only way for miners to sell their additional supplies to China. Miners will eventually have to sell at lower prices on the spot market.”
Mr Xu said the three iron ore producers, which account for about three-quarters of the traded material, will have to compete with Indian and Chinese products. Iron ore miners and steelmakers are now in talks to set annual benchmark contract prices for the year starting April 1st. He added that “Chinese steelmakers, whether big or small ones, are very reluctant to cut production. Prices may recover only when daily production drops below 1.25 million tonnes.”
According to figures from the National Bureau of Statistics, China’s crude steel production was 40.4 million tonnes in February equivalent to 1.33 million tonnes of daily output.