Chinese steel makers to demand 40 per cent cut in iron ore price

12 January 2009

China's steel makers are seeking a 40 per cent reduction in iron ore prices from Australian and other miners and also want the contract prices to be reviewed four times a year than annually as they want the iron ore price cuts to fall in line with the global declining demand for steel.

As negotiations are underway between Chinese steel companies and mining giants BHP and Rio Tinto, the Chinese steel makers are expected to put forth their demand for a 40 per cent cut in iron ore prices, which has seen six consecutive years of price rises, thereby increasing the profits of the miners all these years.

With steel prices continuing to fall globally due to the economic meltdown, Chinese steel makers, who were forced to accept a huge price raise by the miners, now want a price payback from the miners as last year itself the contract price of iron ore galloped from $52 to $90 a tonne.

Chinese steel makers are also asking for a review of iron ore prices four times a year than once a year as at present, although they themselves had in the past refused to accept frequent reviews when ore prices were rising.

But with steel prices having declined, Chinese steel makers have no choice but to go in for more price reviews to bring down the annual benchmark iron ore price in line with the spot iron ore market price where both the iron ore suppliers and steelmakers are on an equal footing.

Chinese steel makers are asking for this new continuous review because the spot iron ore prices are far lower than the contract prices signed by them a year ago.