China not giving ground in iron ore talks

Reuters | Wed, 20 May 2009 07:26
[miningmx.com] -- China's steelmakers have not given any ground in benchmark iron ore price talks, an industry executive said on Wednesday, denying reports that they could soften their insistence on a 40 percent price cut.

China's steel industry, the world's biggest, traditionally sets a global benchmark each year after lengthy talks with three miners that dominate the iron ore trade: Vale, Rio Tinto and BHP Billiton.

"The position of the Chinese side has never changed," Shan Shanghua, secretary general of the China Iron and Steel Association (CISA), told Reuters in a telephone interview. "Any news about our changes was speculation."

Shan denied media reports on Wednesday that CISA could accept a price cut by between 30 percent and 35 percent.

China's steel industry has been reiterating its view that term iron ore prices should fall by at least 40 percent to 2007/08 levels, pressuring miners to accept deep price cuts, as steel firms struggle with faltering demand.

"We insist on three principles during the negotiation: the relation between the supply and demand, the balance of production costs between the two sides and the balance of rational profits between the two sides," Shan said.

"They are our principles. It is not sustainable if iron ore producers keep a high profit margin but steel mills suffer losses. It is common sense," he said.

Steel industry losses seen

Shan said he agreed with a comment by Baosteel's chairman over the weekend that China's steel industry may post a loss for 2009 because of overproduction, adding that steel mills must cut output as the economy has not bottomed out.

"So far we are producing at a rate equivalent to an annual output of 520 million tonnes, compared with the target set by the industry ministry of 470 million tonnes. We will see a huge stockpile," he said.

China's Ministry of Industry and Information Technology has issued a notice calling on commercial banks to restrict or cut off credit to steel enterprises that were "blindly expanding in disregard of the market".

The notice said steel output was "seriously oversupplied" and imports of iron ore were also showing excessive levels of growth, creating massive risks for the industry.

"Why these mills can build up stockpiles without concern about cash flow is because they have bank loans, and we want to cut the chain," Shan said.