In late August, a delegation comprised of officials from the China Iron & Steel Association (CISA) and representatives from China's 19 leading steelmakers paid an official visit to Brazil to make contact with local interested parties on the issue of iron ore fairs. Although the delegation specified that this visit was taking place ahead of and separate from the official iron ore negotiations for 2008, the visit has widely been considered as a symbolic initiation of the new round of talks.
In past rounds of international iron ore price talks, for many reasons China always had a comparatively passive status and acted as a price follower rather than a price maker. As a result, China reluctantly accepted price hikes on several occasions. Since 2004, China has taken part in five rounds of iron ore price talks (including this new round). And after four years of continuous price rises, the accumulated price hike in that period has already reached 165 percent.
According to the agenda of the Chinese visit, the China's delegates will travel to three countries - Brazil, Argentina and Australia - where they will meet with government officials, relevant industry associations and ore suppliers. Although the core mission of the Chinese delegation is to communicate with the world's top three iron ore suppliers - CVRD, BHP and Rio Tinto - government officials and steel/iron ore associations are also important parties on the visitors' agenda: this is due to the simple reason that China has realized that it is more difficult to get a good price by talking only with the big iron ore magnates, and that it is important also to meet with other parties that have their own particular influence on the iron ore price talks.
Although Baosteel was appointed one month ago as the representative of China's steelmakers to present their case at the new round of talks, it is not the delegation leader. Instead, the CISA vice-president Mr. Luo Binsheng will be the team leader of the Chinese delegation this time. The CISA is really a semi-official association in China. It strongly hints that China's government hopes to receive support from the other interested parties in the above-mentioned countries. After all, along with the rapid development of China's economy and the ever-increasing economic ties between China and these countries, all the governments and industry communities involved are seeking a win-win situation by means of cooperating with each other. From this angle, the CISA's direct participation this time may become a very important factor in the talks.
Currently, China's demand for steel is still booming. The national output for the first six months is over 230 million tons and accounts for nearly 50 percent of world production. China's demand for steel so far this year has increased by 10 percent compared to the same period last year, while demand in 2008 is expected to go up by around seven percent. Due to the price rise in shipping costs and over-heated purchase activity levels, China's spot iron ore price is now at a high level of around US$110/mt. These factors will not be in China's favor China at the new negotiations.
Meanwhile, some iron ore magnates like RioTinto have recently made public hints regarding cost rises and commented on the current and future supply & demand situation for iron ore. This indicates a strong stand by the world's iron ore suppliers and their confidence in the future.
Some world famous banks and institutes have predicted that the iron ore price for 2008 will inevitably rise. Some have even predicted that the margin will be 25 percent up on the base price for 2007.