Although it has not been long since the conclusion of the 2008 international iron ore price negotiations, the new round of talks for 2009 is set to begin in September. Undoubtedly, the final result in 2008 was a compromise between Chinese steelmakers and the world's top iron ore suppliers, especially the Australians. Chinese steelmakers accepted a higher price hike for Australian iron ore compared to ore from Brazil; meanwhile, the two Australia-based iron ore magnates abandoned their special demand for shipping fee compensation.
However, the agreement reached is temporary, just valid within 2008. Without substantial changes to the current supply and demand situation, i.e. the situation where the top three suppliers exert strict control over 70 percent of the world's seaborne iron ore trade and Chinese demand for steel keeps booming, the ambitions and moves of iron ore monopolies to achieve the biggest profits will continue to be observed.
As result, the Australians have been pushing to put forward a world iron ore price index, with which they hope to replace the current annual price negotiations. Chinese steelmakers strongly oppose this proposal as it is based on the spot price of Indian iron ore exported to China, which is the highest price for iron ore purchased from abroad by China. It seems that Rio Tinto's best bet in its struggle against a BHP merger is to attempt to raise its own value. As a result, it is widely considered that Rio Tinto will continue to insist on the abovementioned proposal for the 2009 negotiations. As for the Brazilian mining giant Vale, its best tactic in 2009 is to be a price follower so as to avoid the losses incurred in 2008.
In this context, the latest statements from the China Iron and Steel Association (CISA) indicate the main principles for Chinese steelmakers in responding to the challenge from the iron ore suppliers.
To exert a more strict control over domestic steel output and to promote the change of the world supply-and-demand balance.
To make great efforts to promote mergers between local steelmakers and to eliminate dated steel capacities.
To regulate the trade of imported iron ore and to eliminate the current disorder in the import price situation of different iron ores.
To carefully research a negotiating strategy and tactics, and to argue on just grounds, to the advantage of the Chinese side, and with restraint.