China braces for costlier iron ore imports
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China may yet seek to spoil the merger of two of its biggest iron ore suppliers, but that won't help its steelmakers stave off another big rise in annual prices when negotiations resume later this month.
Chinese steel industry officials are starting to suggest they could accept an increase of 30 per cent for the year beginning in April, but even that could be hard to win with spot market prices now nearly double what they were last summer.
"I think a 50-70 per cent increase is still possible. It would still be lower than spot ore prices," said a trader in Beijing who sells spot iron ore to China. Analysts who expected a modest increase months ago now see a rise of over 50 per cent as likely.
Top miners BHP Billiton and Rio Tinto - which together supply around 40 per cent of China's iron ore imports - are believed to be aiming at a 70 per cent price hike.
BHP on Wednesday launched a formal $147 billion bid for Rio, but China's Chinalco could block the takeover after it teamed up with Canada's Alcoa to snap up a nine per cent stake in Rio.
Chinese steel mills, led by top producer Baosteel, are expected to resume 2008 price negotiations later this month after the Lunar New Year holidays that began on Wednesday.
Mills under pressure
Mills are under increasing pressure from rising raw materials costs, including iron ore, coal and coke. A 35 per cent rise in term prices would increase the cost of making steel by 10.6 per cent, according to Ms Helen Lau, metals analyst for Daiwa.
Officials with the iron ore miners have denied that any firm price is on the table for discussion yet.
Contract iron ore prices have nearly trebled over the past five years, rising 9.5 per cent for the current year to between $55 and $63 a tonne, free-on-board, for Australian ore.
Despite a likely US recession and winter transport problems in China, which cut coal supply to mills and forced many metal smelters to shut, Australia's Goldman Sachs JBWere Investment Research said contract prices would probably rise by 60 per cent, double its earlier forecast. "We estimate that the gap between supply and demand in seaborne iron ore trade will widen to about 40 million tonnes this year," Goldman said in a report, adding China's iron ore import requirement would rise despite slowing steel growth.
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Source : Business Line |
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