Mills condemn merger talks
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Industry associations and steel mills Sunday expressed opposition to the proposed merger between BHP Billiton and Rio Tinto, condemning the top three global miners - BHP Billiton, Vale SA and Rio Tinto - for being short-sighted in setting unfairly high ore prices.
Ian Christmas, director general of the World Steel Association (WSA), said at the ongoing 6th China International Steel Conference Sunday in Beijing that "quarterly spot pricing seriously increases the volatility of steel costs and prices," adding in the short term there is little that steel mills can do "other than urge governments to oppose any further concentration in the three mining giants."
On top of the three miners' breaking with 40 years of annual iron ore pricing and imposing a quarterly pricing system, BHP and Rio have been trying to integrate their Western Australian iron ore operations, saying the joint venture would be limited to resources and infrastructure consolidation.
"That is ridiculous," Xu Lejiang, chairman of the world's third-largest steel producer, Baosteel Group, told a group of reporters on the sidelines of the conference.
"The market concentration is already too high. If two of the world's biggest iron ore miners join hands, the lives of steel mills will surely become tougher," Xu said.
Xu refused to speculate as to whether or not the merger would be reached despite the objections of industry associations including the WSA and government review in China, Australia and the EU.
Xu also said all steel mills, except those that provide their own ore, are concerned about the quarterly contracts, as they will likely pay 90 percent more. He added that if steel mills don't pass on the price hikes, they won't survive.
Baosteel board secretary Chen Ying said Wednesday if 2010 iron ore prices increase 100 percent, the cost of melted iron per ton will be lifted by 600 yuan ($87.90).
Many Asian steelmakers including Baosteel have signed quarterly contracts or provi-sional agreements in order to feed their production.
"Iron ore is not a scare resource. Recent demand might be so strong that supply cannot follow. However, 'demand greater than supply' might be also caused deliberately by the three miners, which control 70 percent of the global iron ore supply," Xu said. "The three miners' short-sightedness in setting prices unilaterally is driving all steel mills to invest in their own mines."
Deng Qilin, chairman of the China Iron & Steel Association and general manager of Wuhan Iron and Steel, called on iron miners to set prices fairly, keeping their long-term interests in mind.
Paolo Rocca, chairman of the WSA, said the only way out is to find more resources both inside and outside China.
