Chairman of Shanghai-based Baosteel Group, Xu Lejiang, stated on June 8 that the third quarter this year will be the hardest time for the Chinese steel industry, since the prices of iron ore are expected to reach a peak level during this period, and also due to the weak demand from the downstream industry.
Mr. Xu commented, "Q3 will be a tough period for the steel industry and some steel companies may be forced to cut production." As regards the quarterly prices set by the three iron ore giants, he stated, "I predict that the peak price for iron ore for this year will appear in the third quarter, based on the pricing principle of the three iron ore suppliers." He went on to say that, caught in the middle between the iron ore price increases and weak demand from the automotive industry, Baosteel has had to lower its prices, which will inevitably have a negative effect on the earnings of the company.
As to the question of whether Baosteel would consider the spot iron ore market if the spot price is lower than the contract price in Q3, Mr. Xu answered, "Some small-sized mills may turn to the spot iron ore in the third quarter in view of their own profit margin. Baosteel will not do so, but we will resist the pricing system set by the three mining giants."
On the positive side, however, Mr. Xu predicted that iron ore prices would drop back down in the fourth quarter as more mills choose to cut back production.