Global iron ore miners locked in pricing battle with China

29 April 2009

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.