Miners forced to take discounted prices for iron orePublished...

Miners forced to take discounted prices for iron orePublished 5:17 AM, 6 Sep 2012

The sharp decline in iron ore prices, and a clouded outlook for the metal, has prompted China to clamp down on excess capacity and begin demanding that Australian iron ore exporters sell their product at discounted rates, according to The Australian Financial Review.

The Chinese government has ordered all steel mills in the country producing less than one million tonnes annually to close in an effort to shut unprofitable capacity.

The prospect of declining Chinese demand has hit Australian miners hard, as they have become increasingly reliant on Chinese state-owned traders to sell stock at a time when the miners are struggling to find buyers for their inventory. The AFR reported that Rio Tinto now sends nearly a third of its iron ore through Sinosteel to stockpiles in China.

BHP Billiton Ltd has denied a report that chief executive Marius Kloppers told investors recently that the company's shipments were being deferred. But reports have emerged that Chinese steel mills are demanding that BHP sell its iron ore at as much as $US5 a tonne below the spot price, the AFR reported.

“BHP right now is offering cargoes on the spot market but no one will meet their price expectations so mills are going about $US5 below what BHP can offer,” an executive in the raw material import department of a top five Chinese steel mill reportedly told the AFR.

“Rio Tinto right now don't have long-term contracts for buying 30 per cent of their shipments on a regular basis. They are offering cargoes at spot prices to traders just to move the iron ore. Sinosteel is stopping steel mills from bidding, they prefer to buy it from the stockpiles in China."

"I think some big traders can still get money from the banks, but if traders stop buying, then there will be a big problem.”

The AFR added that Fortescue Metals Group is considering sending shipments without payment as orders from steel mills continue to disappear.

Falling iron ore price have hit Australian miners hard, with Australian iron ore stocks losing $4 billion in value in a single session Wednesday, The Australian reported.

Fortescue alone lost 29 cents to see its share price close at $3.12 Wednesday, on a day when iron ore prices hit a three-year low of $US86.90 a tonne.