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Chinese steel mill anxious to secure ore
Sarah-Jane Tasker
April 22, 2009
Article from: The Australian
CHINESE steel mills continue to target Australian iron ore miners to secure long-term contracts as domestic ore production dries up.

Perth-based iron ore producer Territory Resources' chairman Andrew Simpson, who recently returned from visiting Chinese steel mills, said with the short-term spot price falling, a percentage of domestic Chinese suppliers were losing money.

"I am getting two to three inquiries a week from China about securing long-term contracts because there is that anticipation that a percentage of domestic production will stop," he said.

Mr Simpson added that the cost of domestic production in China would be a key determining factor on the final price settled in annual contract talks between the major miners and steel mills.

China produces about 800 million tonnes of iron ore a year, but much of that is low grade and high cost.

"The general consensus is at least 50 per cent of domestic producers in China, at the current spot prices, are under water, so even today a little company like Territory is being inundated with people from China wanting to write long-term contracts," Mr Simpson said.

He said he expected iron ore price negotiations to result in about a 35 per cent decline, which he said would be a fair and reasonable result.

"The majors pushing the price so high last year was a surprise and it damaged the trust with suppliers," he said.

"Chinese mills are still grumpy and now, with the oversupply in the market, it is their turn to bat and they have got the biggest bat out and there will be a few bumps before prices are settled."

Rio Tinto chief executive Tom Albanese declined to comment at the miner's annual general meeting on Monday on the annual iron ore talks between miners and Chinese and Japanese steel mills, leaving the task to his head of iron ore, Sam Walsh.

While Mr Walsh did not go into the price talks, he was keen to describe the mining major's potential upside in the Pilbara, in response to shareholder questions on whether the iron ore division would have benefited from BHP's bid for its rival.

Mr Walsh said there were obviously still potential iron ore synergies between Rio and BHP, but a better option for the miner would be to expand its port at Cape Lambert in Western Australia. "Cape Lambert is readily expandable from 80 million tonnes to 100 million tonnes or beyond," Mr Walsh said. "Port expansion for BHP will be more difficult, and we are very well positioned (in relation to) the synergy value we can deliver to our own business."