CISA decides to wait CVRD reaction before accepting price hike

SteelOrbis Shanghai China Iron and Steel Association (CISA) held a meeting on May 29, 2006 with major steel mills including Baosteel in order to work out some countermeasures to the 19 percent iron ore price increase. In the meeting, CISA decided to "wait-and-see" CVRD's reaction after May 31, instead of accepting the 19 percent increase. If CVRD does not give a strong reaction and continues to ship iron ore to Chinese steel mills, then CISA may delay accepting the price hike further. However, if CVRD stops shipping ore, Chinese steel mills may either accept the 19 percent increase or opt not to sign a long-term contract with CVRD. Currently, the chances are square for both. Recent report in Reuters stating that, "China is prepared to accept the agreement of 19 percent increase on iron ore" is only a comment and not a definite conclusion yet. Chinese mills are facing a dilemma. They will fall into shortage, especially for lump ore if they refuse to sign contract with CVRD. On the other hand, CVRD's iron ore CIF price is currently higher than the spot market prices. The domestic ore supply is also expected to increase further in the second half of the year. Therefore, if they sign the contract with CVRD, then they will not be able to benefit from potential price decreases of domestic ore which accompany to the increase in supply. China's iron ore import quantities from Brazil and Australia increased before April 1 as Chinese steel mills tried to pile up iron ore inventories before being affected from the price hike. Therefore, currently iron ore inventories of major steel mills are high, and judging China's future iron ore demand by the imports before April 1 may not be right.