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iron ore pricing 2006 - postponed mid feb Steel price talks break down
Andrew Trounson
January 26, 2006

IRON ore price talks in Tokyo between Japanese steel mills and the major miners have broken down, as the mills resist pressure for a price increase.

The Japanese mills, which last year caved in to demands for a spectacular 71.5 per cent price hike, are arguing that weakening steel prices and steel production cuts will reduce tightness in the iron ore market and eventually weigh on a strong spot market.

With the two sides still far apart on prices, the talks appear set to drag on into March.

China, the world's biggest buyer, was shocked at having to swallow the Japanese settlement last year and is pressing for a price reduction.

Iron ore is a key earner for Australian mining giants BHP Billiton and Rio Tinto, and in the wake of last year's price rise, Australia's export earnings from iron ore are set to jump to almost $14 billion in 2005-06, up from $8.1 billion the previous year.

But, while analysts are generally forecasting a further price rise of 10-20 per cent from April 1, there are some who are tipping a price fall. Mining consultants Caiani & Co yesterday stuck by its call for an overall 10 per cent price decline.

It expects a rollover in prices for high quality ores to be offset by price falls for lower quality product.

Caiani China analyst Jay Ma told The Australian that the Chinese were determined to negotiate independently of the Japanese and likely to try and tempt Brazilian miner CVRD with increased volumes in return for moderation on prices. CVRD, BHP and Rio control over 70 per cent of global seaborne trade in iron ore. Last month, China's ambassador to Australia, Fu Ying, warned that last year's price hike had been a "painful experience" and now it needs to be careful of where it chooses to source supplies from. But, while China has pressed for a fall in contract prices, Macquarie Equities yesterday reported talk that some Chinese mills had agreed to some short-term contracts with two of the big three miners at prices 6-10 per cent above current contract levels.

Macquarie said that while such sales were unlikely to have implications for final contract prices, they do suggest there is room for a further price increase.

CRVD chief executive Roger Agnelli yesterday warned that further price increases were needed to justify the billions of dollars miners are spending to ramp up production to meet demand.

"We are meeting our investment commitments but the cost of projects has risen substantially and the steel makers will have to take this into account," Mr Agnelli said.

The Japanese steel industry newsletter, the Tex Report, yesterday said both sides in Tokyo had agreed to a "cooling off" period ahead of reconvening in mid-February. It said the three big miners had pressed for price increases but have yet to put "tangible" numbers on the table.

With Bloomberg