China Iron and Steel Association has called a conference of the largest domestic steelmakers to work out a common stand in bargaining with major iron ore producers in the 2009 round of price negotiations starting next month, the English newspaper China Daily reported on Tuesday.
This round of negotiations is expected to be different from previous ones that were largely dominated by the ore suppliers. This time, the market situation has changed as fallout from the global credit crisis has greatly depressed demand, the China Daily said.
The enhanced bargaining power of Chinese steelmakers in this buyers' market was clearly demonstrated by their boycott of Brazil's mining company, Companhia Vale do Rio Doce, which unilaterally raised ore prices on Sept. 3.
Major Chinese steel makers and iron ore suppliers decided to suspend imports from Vale because of the company's price hike on iron ore.
Shrinking steel demand, plus a sagging property market and dropping car sales, has pushed the prices of Chinese steel products down by an aggregate of 40 to 50 percent since early October.
"The only way out for steel producers at the moment is to slash production to fight the drop in steel product prices," said Li Bing, director of the mining resources trading department at Ma Steel in Hebei Province. He added Ma Steel has cut its production by 30 percent this month.
Despite dwindling demand for steel products, many Chinese steelmakers, in compliance with previously agreed trading contracts with ore suppliers, are continuing to import iron ore from Australian suppliers at the contract price, which is much higher than the current spot prices.
Baosteel, the country's top steel producer, last week announced a further drop in the prices of its major products from 1,700 to 1,000 yuan (US$146to US$249) per ton.
"Falling spot iron ore prices and the output reduction by Chinese steelmakers will combine to strengthen their bargaining power in the negotiations," said Du Wei, a senior steel industry analyst with the Chinese Umetal.com website.
(Xinhua News Agency October 28, 2008)
