China may agree 85 pct iron ore price rise: sources 7-May-08 by AAP
China may concede to Australian demands to include a freight premium in iron ore price negotiations that could boost this year's price rise to 85 per cent, industry sources and a media report said today.
There is a strong view within the Chinese industry that miners will achieve the 85 per cent increase, exceeding a 65 per cent rise already agreed with a key Brazilian miner, The Australian Financial Review reported today, citing an unidentified senior source at a leading iron ore trader in China.
The report said this was because Chinese steel mills were paying much higher prices on the spot market than the existing benchmark price.
Industry sources in China added that the steel sector's brisk demand for raw materials also supported expectations that they would agree to the freight premium.
"Australian miners have been very tough during the negotiations, because it is very obvious that Chinese mills are eager to obtain more iron ore supplies to support the growing steel sector," said an executive with a leading state-owned metals trading house.
China's crude steel output in 2008 is expected to grow about 10 per cent from last year, to around 520 million to 550 million tonnes. The country has taken the lion's share of additional iron ore production from global miners, including BHP Billiton, Rio Tinto and Vale.
The trading house executive also said he thought an 85 per cent rise, which was first mooted in research reports from several investment banks, was "very likely because the banks are also shareholders of some of the miners".
Asian steel mills' negotiations with the miners on annual term iron ore prices have stalled over the proposed inclusion of a freight premium sought by the Australian miners to reflect freight savings to China compared with importing Brazilian ore.
The 65 per cent benchmark increase was negotiated by rivals including Brazilian miner Vale.
Officials at Baosteel Group, which represents Chinese mills in the price negotiations, and the China Iron and Steel Association have repeatedly said that China would not accept a freight premium. No comment was immediately available from officials of the two entities today.
Several Chinese industry sources believed that Baosteel, the state-owned parent of Baoshan Iron and Steel, might accept a premium on the top of the deal agreed with Vale after positive comments on steel prices by a Baosteel executive today.
Baoshan Iron and Steel President Fu Zhongzhe told the state-run China Securities Journal that the company's steel prices were likely to remain at a high level into the third quarter.
The listed unit had said in its 2007 annual report that the outlook for China's steel market was still unclear.
Baosteel usually announces third-quarter prices in late May. Some steel traders in China said they had heard that Baosteel was considering a marked rise in steel prices for the July-September quarter.
Baosteel raised its major steel product prices 17 to 20 per cent in the second quarter after raising first-quarter tags as much as eight per cent. Analysts have said the hikes would help the company to pass along rising raw material costs to its customers.
"It seems that Baosteel is confident," said a senior manager at a Baosteel rival. "They may have come up with some justification for rising prices, both for iron ore and steel products."
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