CHINA, the world¡¯s largest iron ore consumer, may ask Rio Tinto and rivals to accept an 82 per cent price cut for the raw material after steel prices plunged, an industry official said.
¡°Iron ore prices should keep pace with steel prices, which have fallen to the 1994 level,¡± said the general secretary of the China Iron and Steel Association. ¡°We are asking for a big drop in iron ore prices.¡±
Chinese steel mills wanted to bring forward the start of annual supply contracts by three months to January 1 as demand slowed. The mills could delay taking deliveries of the ore because of high stockpiles, he said.
¡°If the Chinese steel mills are considering it, then they are really feeling the pinch of these low steel prices and the high ore price differential,¡± said Mark Pervan, senior commodity strategist at ANZ.
¡°several European Union mills have asked the same [as the Chinese], with one demanding a 20 per cent cut from January 1 as a condition of resuming shipments,¡± Macquarie Group analysts said in a report.
China¡¯s price cut demands would be more severe than the 50 per cent price cut being forecast by ANZ for the producers Vale, Rio Tinto and BHP Billiton.
All Chinese steel makers were unprofitable in October as exports and demand from car makers and builders slumped, while Baoshan Iron & Steel, the nation¡¯s biggest mill, has forecast that tumbling demand may lead to a fourth-quarter loss.
Benchmark contract iron ore fines sold by Rio Tinto, the second-largest supplier, this year cost about $US92.58 a ton. It sold at about $US16.685 in 1994. Pushing prices back to 1994 levels to match the decline in steel prices in China would mean an 82 per cent decline.
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