Commodities | May 30 2006
By Rudi Filapek-Vandyck
China’s steel manufacturers have been studying the possibility of buying iron ore on the spot market but they have given up on the idea and will now accept the proposed price rise of 19%, unnamed industry and government sources have told journalists in China.
According to reports coming from the country, Chinese steelmakers, who had fiercely been resisting the proposed 19% price rise, have in principle accepted the increase during a meeting held in Beijing yesterday.
The news comes one week after Brazil’s Companhia Vale do Rio Doce (CVRD), the world’s largest iron ore exporter, announced it would raise iron ore prices by 19% unilaterally from June 1 if no agreement was reached by then.
CVRD has taken the leading role in this year’s contract iron ore negotiations by negotiating new contracts with major customers in Europe, Japan and South Korea as the Chinese kept on resisting the proposed price increases. CVRD initially aimed at an increase of 24% while the Chinese negotiators wanted a roll-over of last year’s prices, later changing their position in that they were willing to accept a maximum price increase of 10% for the year to March 2007.
According to Chinese news service Xinhua, China is expected to buy nearly 50% of estimated world seaborne iron ore in 2006. The country’s imports of iron ore jumped 23.5% year-on-year to 108.19m tonnes in the first four months of 2006.
An analyst who spoke to the news service said the 19% iron ore price hike for Chinese steel mills does not necessarily mean an immediate steel price rise, predicting steel prices would be set by demand and supply dynamics in the country.
The local analyst believes the Chinese government is very likely to scrap tax rebates for steel exports soon and this might impose further downward pressure on domestic steel prices.
China cut tax rebates for exports of steel products to 11% from 13% in the first half of 2005 in a bid to slow exports and ease domestic steel shortages, Xinhua reports.