Negotiations on the annual benchmark prices for iron ore imports are not likely to conclude before April 1, when a new annual agreement usually comes into effect, according to analysts.
Ma Tao, analyst, Bohai Securities said talks between miners and Chinese steelmakers might drag on for a longer time than last year as negotiations are more complicated this year. Last year the agreement was inked in June with steel makers accepting a record increase of 96.5 percent.
"Neither side is in a hurry. Suppliers are waiting for demand to recover in the second quarter, while the Chinese side is seeking lower prices," he said.
As the world's largest iron ore consumer China expects to have a bigger say in its negotiations with the three major suppliers, Rio Tinto, BHP and Vale, amid the global economic downturn.
Baosteel, which is leading the negotiations, is asking for an over 40 percent cut in iron ore prices this year, which will be the first drop in seven years. Some analysts have even forecast a decline of up to 50 percent.
However, suppliers are in no mood to accept such a price even though they admit that iron ore prices are "certain to fall" this year due to declining industrial activities. Sam Walsh, head of Rio's iron ore division, was quoted by Reuters yesterday as saying that forecasts for a price cut of as much as 50 percent were too steep given a brightening demand outlook and indications from the spot ore market.
Rio, the world's second largest iron ore producer, is reportedly postponing the negotiations with Chinese mills claiming "markets are volatile and it's difficult to see what a steady state means at the moment".
The miners on the other hand are waiting for China's recent 4-trillion-yuan stimulus package to show its impact on steel production and iron ore demand, said Xu Xiangchun, chief information officer, Mysteel.com.
"A postponement of the pricing may benefit steel makers as a recovery is not expected in the short term," he said.
Xu said steel prices have been falling globally since last month as demand from Japanese and European steel makers have shrunk.
He added that the Chinese steel industry is also adjusting its negotiation strategy. The China Iron and Steel Association recently said that Chinese mills, led by Baosteel Group Corp, would direct sales to iron ore producers that agree to the price cuts.
(China Daily March 25, 2009)
