The game of cat-and-mouse is continuing between the Chinese steelmakers and the world's top three iron ore suppliers. The 8th China International Steel and Raw Materials Conference held recently in Qingdao gave some indication of the current state of relations between the two sides. In past years, the big three iron ore suppliers attended the conference as part of the warm-up process ahead of the annual international iron ore price negotiations. Indeed in 2006, Brazil-based iron ore supplier Companhia Vale do Rio Doce (Vale) was even the principal sponsor of this conference. The absence of the big three from this year's event is widely considered to reflect the current very tense relationship between the main buyers and sellers of iron ore.
The 2009 international iron ore price negotiations are around the corner. However, at the current juncture it seems very difficult for the two sides to sit down together and talk. Vale is still seeking a price hike of 12 percent for its iron ore and the issue has not yet been resolved. Vale continues to insist strongly on the price hike in question on top of its signed contracts and refuses to load iron ore onto ships bound for Asia. In response, all Chinese steelmakers are boycotting Vale and are preparing to make claims against it for significant shipping freight losses.
Lately, Baosteel officials paid a visit to Vale in Brazil to discuss the issue of the latter's requested iron ore price hike. However, the indications from Baosteel are that the meeting concluded in an unfriendly atmosphere with no progress made.
The sharp decline in demand for steel, the huge quantities of stocked iron ore, the sliding spot prices of imported iron ore and the falling shipping freight charges are all factors having a significant impact on the basic steel market situation in China. Currently, the price of imported iron ore from India is close to US$70/mt (63.5 percent), over 25 percent lower than the price for Australian iron ore. As for shipping charges, the Baltic Dry Index (BDI) stood at just 885 points on October 30, down by 22.98 over the last week and down by 72.49 percent compared with the previous month. However, these decreases are not helping to stimulate iron ore transactions. On the contrary, transaction activity is very poor and this trend looks set to continue.
To date, more and more Chinese steelmakers have continued to incur losses. From the Chinese point of view, all the facts seem to be in favor of the iron ore buyers and hardly anyone, apart from the iron ore suppliers, thinks that the current high price of iron ore is reasonable and acceptable. Banking on a recovery in Chinese demand for iron ore in 2009, the top three iron ore mining companies are reluctant to reduce their prices. A recent statement by Vale CEO Roger Agnelli is typical of their position: Mr. Agnelli said that Vale would continue to insist on a price hike and would take the step of reducing its production of iron ore. He went on to express his certainty that the Chinese steelmakers would come to Vale seeking iron ore supplies after their recovery in 2009.
Currently, the pre-negotiation contacts between the buyers and the top three suppliers have reached a deadlock. With India making known its desire to sign a long-term contract with the Chinese steelmakers, the China Iron and Steel Association (CISA) is even bringing forward a new quarterly price negotiation system replacing the current annual one and it argues there should be a single price for all imported iron ore in the future.
At present, everything is still up in the air.