Xu Leijiang, chairman of Shanghai-based Chinese steel producer Baosteel, admitted on May 9 that the iron ore pricing system has already changed. He stated that the situation as regards the iron ore talks might turn around in the next two or three years since the current situation is somewhat unreasonable, and so will eventually be adjusted by the market rules. The situation of a one-sided pricing system for iron ore will not last long, he said
As regards the price hike of iron ore, Xu Lejiang stated that the main market rule is that price is determined by the relationship between supply and demand. Iron ore is not such a rare resource, he said, the excess of demand over supply in terms of iron ore results from the lagging behind of the supply capacity of iron ore compared to the rate of development of steelmakers. The rocketing prices of iron ore is only a temporary situation, Mr. Xu said.
Mr. Xu went on to say that, on the one hand, the price increase of iron ore will force the Chinese steelmakers to speed up purchases of overseas mines or to develop local mines, which means an increase of iron ore supply in the coming two or three years. On the other hand, since the Chinese steel industry uses 70 percent of iron ore supplies globally, if the Chinese steel producers cannot transfer their high input costs to their downstream industries, the whole industry will surely incur losses or be unable to survive, and thus the big three iron ore suppliers will be affected.