Chinese steel makers reject new ore contract rate in Rio-Nippon deal

01 June 2009

Chinese companies, which normally adhere to the pricing standards determined by their Japanese counterparts, are less likely to tag along this time.

China's steel firms have rejected the 33-per cent cut in iron ore prices agreed between Rio Tinto and Japanese steel maker Nippon Steel Corp, as the annual rate for iron ore.

The China Iron and Steel Association (CISA) yesterday said in a statement on its website that the price cut does not reflect the real supply and demand situation on the international market and would lead to overall losses for Chinese steel companies, the CISA.

Steel makers say that the reduction in iron ore prices is not enough to offset the fall in the selling price of steel products in the global markets.

China, the biggest importer of iron ore, has justified a price cut of 40 per cent on two counts. First, it says, iron ore prices have been raised by nearly 400 per cent in the past five years of the global boom that led to a demand for steel. Second, it says, the demand for steel was unlikely to pick up in the current year due to the prevailing global recession and economic slump

Accordingly Chinese steel makers are looking at a price reduction of 40 per cent or more for iron-ore deliveries this year or revert back to the 2007 levels.