Chinese steelmakers may seek iron ore price decrease

Chinese steelmakers may seek iron ore price decrease

According to the news in the local press, China's steel mills may ask Australian and Brazilian iron ore producers to reflect the drops in freight rates on the iron ore prices. Currently, the steel mills in China are holding high inventories. The steel prices continue declining and they are not expected to recover until the end of the third quarter. Therefore, Chinese steel mills are planning to reduce their production and they do not find iron ore prices as low enough to buy and continue their production. Shipping activities from Australia and South America to China are sluggish currently and freight rates have fallen dramatically almost 50% from their levels of two months ago. China's major steel producers such as Baoshan Iron & Steel Co. Ltd., Wuhan Iron and Steel Co. Ltd. and Angang New Steel Co. Ltd had agreed to increase their iron ore purchases in 2005 at least 20% from 2004. Major iron ore miners, Brazilian Companhia Vale do Rio Doce (CVRD), Australian Rio Tinto and BHP Billiton feel confident about their sales due to the “20% more purchase” in their long-term contracts with Chinese buyers. However, it should also be noted that a month ago Chinese steelmakers convinced BHP Billiton not to add a freight premium on its prices.