China Steel Mills Slowing Ore Demand, Mt. Gibson Says (Update2) By Rebecca Keenan
Oct. 9 (Bloomberg) -- Steel mills in China, the world's biggest producers, are cutting demand for iron ore and asking miners to postpone deliveries because of slower sales and a lack of credit, said Mt. Gibson Iron Ltd., an Australian producer.
``Customer and iron ore sector analysis indicates a slowdown in demand for iron ore in China due to current economic uncertainty and the tightening of credit facilities,'' the Perth- based company said today in a statement to the Australian stock exchange. Mt. Gibson said it received requests to delay shipments until the second quarter of the financial year.
Chinese mills have slowed production, sending cash iron ore prices down 17 percent in the last week of September. The global financial crisis has locked corporates out of capital markets after financial companies booked more than $592 billion in writedowns and credit-market losses since last year.
``The rest of the world is cutting production and that means they don't need China's exports, so China's production in steel is going to slow,'' said Glyn Lawcock, head of resources research at UBS AG. ``That puts the pressure back upstream on raw material suppliers like the iron ore producers and coking coal.''
Mt. Gibson fell 24 percent to 88 cents on the Australian stock exchange, the biggest drop since Jan. 17, 2002.
The company said it has no obligation to delay deliveries as customers are contractually bound to buy the ore. Mt. Gibson sells ore to companies including Rizhao Steel Holding Group Co., CITIC Australia Commodity Trading Ltd. and Marubeni Corp. Rizhao declined to comment when contacted today.
BHP, Rio
Mt. Gibson, dwarfed in production by bigger Australian producers Rio Tinto Group and BHP Billiton Ltd., shipped 1.432 million metric tons of ore in the three months to Sept. 30.
``We are not currently seeing any pushback in iron ore deliveries,'' said Peter Ogden, a spokesman for Melbourne-based BHP, the world's third-biggest exporter. Shipments from Rio Tinto, the No. 2 exporter, are normal, spokesman Gervase Greene said.
Fortescue Metals Group Ltd., an Australian iron ore producer controlled by Australia's richest man Andrew Forrest, said customers still required ore and were meeting contractual commitments. ``Fortescue has not experienced any difficulties in its sales programs,'' it said in a statement.
Cash prices of iron ore imported by China fell by a record 17 percent to 1,000 yuan ($147) a ton in the week ending Sept. 29 at Beilun port, according to data from Beijing Antaike Information Development Co. Benchmark contract prices were settled this year at $144.66 a ton.
`First Sign'
``The spot price is now down at the benchmark price and this is the first sign of good quality iron ore being affected,'' UBS's Lawcock said from Sydney. He expects contract prices to fall 15 percent next year, the first decline in seven years.
As recently as last month, five of nine analysts surveyed by Bloomberg News were predicting an increase of 15 to 30 percent in iron ore prices for next year.
Cia. Vale do Rio Doce, the world's biggest iron ore producer, is meeting Chinese mills next week to ask for a second price increase this fiscal year, Shan Shanghua, secretary-general of the China Iron & Steel Association, said today, without elaborating.
China has an excess supply of ore with stocks of about 70 million tons at its 20 largest ports, Lorentzen & Stemoco AS analyst Nicolai Hansteen said yesterday in a report.
Stockpiles may start falling in the last quarter of 2008, Rio Tinto's Chief Executive Officer Tom Albanese said on Oct. 2. Rio plans to sell 15 million tons on the spot market this year after delivering 10 million tons in the first half.
``We are still expecting to sell up to 15 million tons on the spot market this year,'' Rio's Greene said from Perth.
Output Cuts
China's biggest steelmakers including Baosteel Group Corp. and Jiangsu Shagang Group Co. are considering output cuts, the Beijing Times reported yesterday, citing a report from the China Iron & Steel Association. That may slow the use of iron ore stockpiles and curb demand for new imports.
Hebei Iron & Steel Group, Shougang Corp. and two other steelmakers in northern China will cut output by 20 percent this month, the official Xinhua News Agency has reported.
The iron ore market ``will have some constraints for the next 12 months but I don't think it is going to be as bad as the market is telling you,'' Michael McCormick, who helps manage about $130 million at Leyland Private Asset Management, said by phone.
The weaker demand for iron ore has cut the cost of shipping and led to a surplus of vessels for hire. The Baltic Dry Index, a measure of shipping costs for commodities, fell to its lowest since June 2006 yesterday.
To contact the reporter on this story: Rebecca Keenan in Melbourne at [email protected]
UMC Price at posting:
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