China's chances of gaining greater influence at the upcoming iron ore price negotiations are slim, despite the increased demand expected to result from the nation's 4-trillion yuan economic stimulus package, experts said.
Rio Tinto, the world's second-largest iron ore producer, said on Oct 10 it would cut its output by 10 percent due to shrinking demand from China, the world's largest iron ore consumer.
Zhou Xizeng, an analyst with Citic Securities, said: "There are more than 700 million tons of iron ore stranded at ports nationwide, but monthly consumption is only 200 million tons.".
According to Lange Steel Information Research Center, the domestic iron ore price dropped to 740 yuan per ton last weekend, down 54.6 percent from its peak on June 11. The international market saw a 63.8 percent drop from its peak of 1,520 yuan in July, the largest drop in three years.
Zhou said the price negotiations would be tense as "the two sides will disagree on future expectations, since neither side can predict next year's situation". The price will be largely decided by both sides' estimates of future demand, he added.
Analysts believe the iron ore price will likely fall in 2009, depending on how much pressure Chinese negotiators can put on their rivals. But given the fact that the top three iron ore suppliers, BHP Billiton, Rio Tinto and Vale, control 70 percent of the market, it will be difficult to squeeze down the futures price by a large margin, according to Liu.
Imports already account for 50-60 percent of China's iron ore demand, partly due to a combination of low domestic supply and poor quality.
Besides, China'srepresentative at the annual iron ore price negotiation, Baosteel, the nation's largest steelmaker, accounts for less than 5 percent of China's total steel output.
The three iron ore giants control 70 percent of the global iron ore market, "leaving Chinese steel mills little room for maneuver in negotiations," said Liu Baoyang, analyst with GF Securities.
In June and July, Baosteel agreed a price hike of 96.5 percent for supplies with Rio Tinto and BHP Billiton, while an earlier deal with Vale saw a 71 percent price hike.
(China Daily November 19, 2008)
