"Chinese steel producers and the miners have agreed that iron ore supplies have surpassed demand this year and that the iron ore price should drop significantly," Luo Bingsheng, vice chairman of the China Iron and Steel Association (CISA) said yesterday, April 28. However, he added, "The two sides have not yet reached an agreement on the margin of the price cuts."
Chinese steel producers led by Baosteel and the CISA have been in talks with the leading world miners BHP Billiton, Rio Tinto and Vale since the start of the year to finalize annual contract prices for iron ore.
The CISA vice chairman said the Chinese side is still asking for a reduction of up to 40 to 50 percent from last year's prices, considering that iron ore prices have climbed by nearly 400 percent in the past five years. The suppliers, however, are aiming to keep the price cut within 20 percent.
Mr. Luo said a price cut of 20 percent would grossly underestimate the current oversupply of iron ore.
Since the long-term contracts are yet to be finalized, most iron ore purchases are currently being made at discounts of about 30 percent to 40 percent over last year's prices. However, the miners are not willing to sign long-term contracts at such levels given the possibility that there may be a revival in demand.
China imported a record volume of iron ore in March, i.e., about 52.08 million metric tons (mt). This figure beat the previous record set in February when the country imported 46.74 million mt of iron ore.
The rising imports have pushed China's total stockpiles of iron ore at its ports to 70 million mt, more than double the normal level of 30 million mt. In the first quarter, domestic iron ore output increased 2.59 percent year on year.
"The high stock of iron ore in the country is unfavorable for the miners in the negotiations," Mr. Luo said.
Chinese steelmakers reported a combined loss of RMB 3.3 billion for the first quarter of 2009 as oversupply put pressure on product prices, Mr. Luo stated. The following two quarters are also expected to be tough for steelmakers, he added.
Mr. Luo went on to say that the industry has asked the government for more export tax rebates to help businesses boost exports at a time when demand remains weak both at home and abroad.
"We have suggested that the government should give export tax rebates for steel products as soon as possible, also given that the country's steel exports have dropped dramatically in the past few months," he said.