Chinese steel mills give in to monopolies
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Steel makers in China are beginning to compromise with monopoly iron ore vendors Rio Tinto, BHP Billiton and Vale. It seems the Chinese iron ore trade in Q2 will be settled at prices already accepted by Japanese and South Korean steel makers.
According to reports, this year's quotation from the big three mining companies represents an astonishing 86 percent rise over last year's price.
Yang Siming, chairman of Nanjing Steel Group (NG) said that Q1 transactions between Chinese steel companies and the three miners were being conducted at 2009 prices. But in Q2, he said, prices will be individually negotiated by steel companies.
NG has agreed provisional prices, Yang said, adding that NG had "strictly followed the CISA (China Iron and Steel Association) regulations," but declined to elaborate. He admitted NG had already issued letters of credit to the three vendors, a signal that a deal had been agreed.
Prices vary from company to company according to Yang. Some are paying up to US$105 per ton, the price accepted by Japan and South Korea.
The high price has cast a heavy cloud over Chinese steel makers. Yang says the domestic steel business is set to suffer another round of losses in June or July by which time they will have emptied their low-cost inventories.
An executive at Wuhan Iron and Steel Company (Wisco) said the company was at a loss how to secure future iron ore supplies. He said Wisco supported the CISA stance and had not yet compromised with the iron ore monopoly.
But the clock is ticking. When the Q2 shipments start arriving in mid-May Chinese steel makers have to choose either to accept the going price or halt production.
While big steel companies are holding out, smaller mills have long since given in. "We accept whatever terms the three iron ore vendors offer; there's no room for negotiation," a director of a small steel business said.
A small steel business in Jiangsu said small steel companies were paying about US$102 per ton in Q1, rising to US$130 in Q2.
