China Iron and Steel Association (CISA) has encouraged domestic iron and steel companies to adopt a pooling strategy on a voluntary basis to ward off rocketing shipping charges for iron ore.
As spot-contract shipping charges from Brazil to China have shot up from about 10 US dollars per ton to 88.3 US dollars per ton recently, China, the world's largest iron ore importer, has been put at a disadvantage prior to the start of the global negotiation for iron ore prices for 2008.
CISA executive chairman Luo Bingsheng called the price hikes "very abnormal and unreasonable". "We can understand a moderate increase in shipping charges based on current prices of crude oil, depreciation expenses, rising labor costs and the depreciating US dollar," he said.
Tangsteel deputy general manager Zhu Jiandong added the shipping charges from Brazil to China were "going crazy" and "well on track to 100 US dollars".
As many large domestic companies such as Baosteel have already negotiated forward shipping contracts for 2007, it was the small companies that bore the brunt of the sudden rise in shipping charges.
The concern has spread rapidly across the industry. The latest research report by Anbound Group warned the sudden deviation from normal shipping charges may indicate manipulation to certain degrees.
Sources close to the negotiation said Australian exporters had hoped to trade their iron ore at CIF prices next year while the previous practice was to use FOB prices, excluding freight charges.
Industry analysts indicated that the contention for shipping rights would have significant leverage with the upcoming iron ore price negotiation due to start this month.
One project manager with the China National Chartering Corporation requesting anonymity said many heavyweight iron ore manufacturers across the world had rushed to lease more ships to increase their control of shipping capacity.
Australia's BHP Billiton, for instance, leases a dozen cargo ships almost every month, with the daily rental of one ship hitting a record high of 190,000 US dollars.
To remedy the situation, the CISA advised local iron and steel companies to team up geographically and have big importers in each of the five regions, namely northeast, north, east, central and southwest, to act as agents for small local purchasers when it came to the negotiation of shipping charges. The CISA also suggested domestic iron and steel companies avoid spot shipping contracts as much as possible and strengthen cooperation with indigenous shipping firms. "It's high time for the government to map out policies to encourage the construction of more iron ore cargo ships to expand our shipping capacity for dry bulk goods," said CISA's Luo.
China currently has 30 ships suitable for iron ore transport, accounting for only 4.1 percent of the global iron ore shipping capacity. By contrast, the country's iron ore imports were 46 percent of the world's total last year.
CISA figures revealed that China imported 84.03 million tons of iron ore between January and September, up 14.94 percent over the same period a year earlier. The CIF prices for China's iron ore imports have been growing month by month this year and averaged 79.72 US dollars per ton in the first nine months, a rise of 27.06 percent over the same period a year earlier.
The country's total crude iron ore output was expected to hit 805 million tons this year, with 705 million tons coming from large and medium enterprises, CISA figures said.
The world's three largest iron ore exporters, BHP Billiton, Vale do Rio Doce of Brazil and Rio Tinto of Spain, control more than 70 percent of the global iron ore shipping capacity.
(Xinhua News Agency November 2, 2007)
