China iron ore price talks in chaos
JOHN GARNAUT, BEIJING
January 20, 2010
THIS year's iron ore contract price is unlikely to be made in China, as China's steel association widens its rift with mining companies and even its own steel mill members.
A senior mining executive told BusinessDay that the China Iron & Steel Association had so far "repeated all the mistakes of last year and added a few more" in this year's iron ore dealings.
The mistakes included lobbing bombastic threats without having any strategy for following through.
Nearly two months ago, CISA told Vale, Rio Tinto and BHP Billiton that it would be taking a harder line and would not accept anything less than a discount "China price" compared with Japan and other countries, BusinessDay believes.
CISA also said it would repeat last year's disastrous experiment of having Baosteel officials leading the talks while consulting CISA officials in the same room. Baosteel has installed a new negotiator, Wang Liqun, to replace last year's negotiator, according to industry sources.
Since the tough ultimatum, the big mining companies have not heard anything from CISA, no substantive negotiations have taken place and the spot price of iron ore has risen by about a third, to US$135 a tonne.
Prices have risen on frenetic Chinese buying, which has, in part, been driven by fears that new export taxes and a big corruption crackdown on Indian iron ore would reduce Indian imports.
"CISA is behaving every bit as irrationally as they did last time around," said a senior mining executive. "There is no way that anybody is going to want to engage with them."
The executive said that recent reports of Chinese hacking and spying on Google and other US companies had not helped.
In the meantime, genuine talks have progressed between mining companies and Japan's Nippon Steel.
Chinese media reports say that big Chinese mills, including Baosteel, and Wuhan Iron & Steel, have taken it on themselves to fill CISA's leadership vacuum and rebuild bridges with miners. "Collapse of the 'China price' for iron ore" said a front-page headline in the 21st Century Business Herald.
Hu Kai, an analyst with Shanghai consultancy Umetal.com, predicted CISA might get its "China price" after all, but it would be higher than everybody else's.
"Japan and Europe stick to contracts and China imports all from the spot market," he said.
"That means China will pay a different price to every shipment."
Mr Hu said no iron ore negotiations were taking place with China.
He said the Stern Hu case had had "a negative impact" and had helped the resolve of the mining companies against heavy-handed tactics by the Chinese Government and CISA.
"This has resulted in resistance, or even an unwillingness to talk," he said.
He said Chinese steel mills had not helped their cause by walking away from iron ore contracts when prices tanked after the 2008 financial crisis.
"Nobody talks now contracts seem to have no binding power any more," he said.
Source: The Age
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