An agreement was reached Thursday evening between Shanghai-based
Baosteel Group and Brazilian Companhia Vale do Rio Doce (CVRD) on
the contract price of iron ore in 2007.
The price will rise 9.5 percent to 72.11 US cents per metric ton
unit for the next financial year, said a Baosteel source.
Baosteel is the world's first steel company to settle an iron
ore contract with the CVRD for the financial year beginning April
1, 2007.
It's also the first time over the past four years that China's
steel companies have directly reached an agreement with the world's
leading iron ore provider rather than following the benchmark price
settled by their foreign counterparts and the suppliers.
Baosteel failed to reach agreement, on behalf of all China's
steel mills, regarding the iron ore price with the world's three
main suppliers -- BHP Billiton, Rio Tinto and CVRD -- for three
years in succession.
This placed China's steel companies in a very disadvantageous
situation as they had to pay no matter how high the price was, said
insiders.
The three iron ore giants raised prices for Chinese steel mills
by over 70 percent in the 2005 financial year. The steel companies
were then wrong-footed by CVRD this year and forced to accept a 19
percent rise.
Market analysts said the 9.5 percent growth rate basically
reflects supply and demand in today's world iron ore market. Though
China still has an increasing hunger for iron ore the growth rate
has slowed.
On the other hand China saw declining domestic steel consumption
this year and the country's fixed asset investment in the industry
is falling.
Analysts say the shrinking growth rate of the iron ore price
also reflects a balance of interests between China's steel makers
and the international iron ore suppliers.
China is the world's biggest iron ore consumer and it certainly
needs support from the international suppliers, said a senior
manager with Baosteel.
But the manger observed that the world's leading iron ore
providers would also grow dependent on China's steel industry in
the future. As a result a long-term stable and strategic
cooperative relationship should be formed between the two
parties.
Baosteel has more than 30,000 employees and its output exceeded
20 million tons last year.
(Xinhua News Agency December 22, 2006)