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Iron ore price negotiations - Chinks in Chinese armor
Friday, 10 Jul 2009
Reuters reported that China's hard headed handling of iron ore price talks may pave the way for more spot deals and fewer annual contracts next year as frustrated steel mills seek to break with the trade body that has led negotiations to deadlock.

In public, the Chinese steel industry is standing shoulder to shoulder with CISA, which in the past few days has softened its calls for a 40% to 45% cut in iron ore prices to a more moderate reduction renegotiated on a sixth month basis, but the strain is starting to show with some producers.

Industry observers and even Chinese media have said there was little support for the China Iron and Steel Association hardline attitude, which has stymied talks that started last year and may prompt the country steel mills to quietly sign individual deals with miners this year and pay only lip service to the body in future talks.

China's International Finance News, linked to the communist party mouthpiece, the People's Daily quoted an insider saying there is not much support for CISA's uncompromising attitude. The report said "CISA is now riding a tiger and can not get off. The hard line has no strong internal support but compromise means defeat."

An official at a large Chinese steelmaker said “Talks should be only between the actual consumers and suppliers. But CISA said it is the coordinator for the whole industry we just let them do it."

CISA, ostensibly a trade body with 72 members accounting for about three quarters of China's steel capacity is a pasture for retired officials from government organizations and state owned steel firms some of whom are savvy market players while others are well connected party relics.

Talks with mills said last month saw a deadline for some annual contracts pass without settlement, but a spokesman for Rio Tinto which has been in the vanguard for this year's settlements. It said that "Our contracts are with our steelmaker customers, not CISA. We have reached a benchmark settlement with steelmakers in Japan, Taiwan and South Korea and discussions continue to take place with different customers in China."

(Sourced from Reuters)