General | Feb 03 2006
Price negotiations between the iron ore producers and steel companies in China, Japan and Europe are continuing, but according to steel industry consultants MEPS any settlement still appears some time away.
MEPS points out the issue is being pushed hardest by the Chinese, who are now the world’s largest importers of iron ore given more than 80% of the country’s steel production is from blast furnace mills, which require iron ore as feed.
The Chinese have been aggressive negotiators, going as far as threatening price caps but then backing off, though MEPS notes they are still pushing for lower iron ore prices this year.
Such an outcome is unlikely according to MEPS given the ongoing tightness in the iron ore market, as production increases from mine expansions remain 2-4 years away but demand continues to grow more strongly than for steel itself.
As a result, market indications are for price rises of between 10-25% this year, though MEPS suggests an increase of 10-12% is more likely.
Given China’s demand for iron ore remains on the upswing it has begun looking at new methods of ensuring supply, including buying directly into iron ore projects.
State-backed CITIC Pacific is the latest example, the company agreeing to terms with Clive Palmer to buy his private company’s iron ore interests for more than US$400m. The assets could produce as much as 24m tonnes of iron ore annually, with potential to triple this output in coming years.
While unlikely to impact on the current price negotiations, the Chinese strategy may ultimately strengthen its position, at the same time reducing the future bargaining power of the iron ore majors.
But as things stand right now, that’s still music for the longer term. Last year, contract iron ore prices jumped by 71.5%.
