Qingdao scene of iron ore price negotiations

Qingdao scene of iron ore price negotiations

Iron ore prices for 2006 long-term contracts for China will be negotiated during the Fifth China International Steel and Raw Material Conference, which opens today (October 24) in Qingdao, China. China’s forty-five key iron and steel enterprises have gathered in Qingdao to attend the three-day meeting on China’s steel products and raw materials. Representatives will negotiate iron ore prices for the period of April 1, 2006, to March 31, 2007, with the world’s three largest iron ore producers - Brazil-based CVRD and Australia-based BHP Billiton and Rio Tinto. China’s steelmakers and these three iron ore producers signaled their intentions for the upcoming negotiations several weeks ago. CVRD indicated that, based on its price increase of 71.5 percent in 2005, the 2006 export price of iron ore in Brazil will be increased by 10-20 percent. Mr. Fabio Barbosa, CFO of CVRD, said that China is an impetus that drives up the international iron ore market. He mentioned that he is full of confidence heading into this round of negotiations. BHP Billiton and Rio Tinto did not hint at a possible price increase, but pointed out that their sales and production are favorable. China Iron and Steel Association (CISA), one of the major participants in the negotiations, pointed out that iron ore price should be decreased due to the oversupply. Sinosteel Corporation, China’s largest importer of iron ore, echoed CISA’s sentiments as they estimated that iron ore prices in 2006 and 2007 will decline by 5 to 10 percent. Players in the international market hold different attitudes towards the iron ore price. In the third quarter, iron ore prices are expected to slide by a small amount; however, it is predicted that iron ore prices might actually see a slight increase. Furthermore, Morgan Stanley estimates that 2006 iron ore prices will climb five percent, while UBS Group forecasts a ten percent jump. Chinese steelmakers have long prepared for the negotiations. The gathering of these 45 steelmaking enterprises shows their determination to engage in joint purchasing. Past failures to bargain on equal footing with the iron ore giants has been due to the highly fragmented nature of China’s iron and steel industry. SteelOrbis Shanghai