Global iron ore mining giants and world's largest steel producer, China, are locked in a negotiation battle to fix this year's long-term price for iron ore as both sides have failed to agree on the size of the price cuts despite plunging global demand for steel.
Chinese steel producers and China Iron & Steel Association (CISA) have yet to reach an agreement on the size of the price cuts with mining giants Vale of Brazil, BHP Billiton and Rio Tinto in order to fix this year's long-term iron ore prices.
In wake of plunging demand for steel, and iron ore being the main ingredient in steel making, Chinese steelmakers are seeking price cuts of more than 40 per cent on the annual contracts while the miners are not willing to accept a price cut of anything more than 20 per cent.
China, the biggest importer of iron ore, has said that the price cut of 40 per cent was justified since iron ore prices have gone up by nearly 400 per cent since the past five years and the demand for steel is highly unlikely to pick up in the current year due to the global recession.
Posco of South Korea recently said that iron ore prices should be reduced by half this year, which works out to approximately $40 to $45 a metric ton.
Chinese steel exports have declined by 55 per cent in the first quarter this year but despite this, it imported a record volume of iron ore in February and March, even though their steel production in the first two months of the year has not risen at the same pace as these raw material imports.
In February, China imported a record 46.74 million tons of iron ore and it took just one month to beat the record, by importing 52.08 million tons in March.
These record imports have created a stockpile of 70 million tons iron ore at ports, more than double the normal level of 30 million tons.
CISA has asked all Chinese steel producers to pay 40 per cent less than last years term price and the difference if any would be refunded once the final price has been fixed for the year.
Meanwhile the CISA is urging the government to raise the export tax rebates over and above the rebate given in the past few months to steel manufacturers since exports have declined.
But, this has already invited the wrath of certain countries like India and the US.
India has launched an investigation this month into cheap imports of some steel items like HR coils from countries like China and may impose duties of up to 15 per cent on these items in order to safeguard the interests of domestic producers. (See: India weighs safeguard duty on certain steel imports)
Again this month, US steel manufacturers and the United Steelworkers union (USW) filed an anti-dumping and countervailing duty trade case against China with the US Department of Commerce (DOC) and the US International Trade Commission (ITC) for dumping certain types of tubular and pipe steel in the country last year. (See: US steel makers, union file anti-dumping case against China)
It is the biggest ever anti-dumping case filed by the US against China and the US steel manufacturers allege that Chinese producers benefit from massive government subsidies and dumping margins ranging from 40 to 90 per cent.