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Iron ore negotiation - CISA suggests biannual pricing

Caijing cited Mr Shan Shanghua general secretary of China Iron & Steel Association as saying that "As supply and demand sides differ widely in opinions on 2009 iron ore market, we propose adjusting the volumes and prices of iron ore contracts every half a year. Both sides can ward off risks in this way."

By convention, FOB price is the benchmark price for iron ore price negotiation. The price agreed by any steelmaker and iron ore miner in the negotiation shall be accepted by other steelmakers and miners and will be valid for one year.

According to Mr Shan, China forecasts the country's steel output in this year will not exceed that in 2008, implying a decrease in iron ore demand. But foreign miners believe China's economy will revive in the second half of this year and demands for steel and iron ore will increase, pushing up steel price.

He said that "If economy recovers, iron ore consumption will increase and adjustment of supply volumes is necessary." He added that volume is always inversely proportional to price and bigger volume should indicate preferential price.

Mr Shan said that the negotiation should start from the level in 2007, which means, Brazilian miner Vale should lower the price by 39% and Australian miners BHP and Rio Tinto should cut prices by 45% compared with their 2008 levels.

He said that "Chinese steelmakers have two bargaining chips in this negotiation." He pointed out that worldwide iron ore supply and demand relationship has changed. Supply swells yet demand shrinks hence China has every reason to chase price cuts. Besides, as Australian Dollar and Brazilian Real depreciate, suppliers will witness fewer profit decreases even if iron ore prices slump since the trade is settled in US dollar.

Mr Shao said that even though Japanese and South Korean steelmakers persist in fiscal year start from April 1st China will still ask for a start from January 1st

 

Jan 27, 2009 12:20
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