China expects rise in iron ore price

Reuters | Tue, 03 Nov 2009 12:32
[miningmx.com] -- CHINA has said it expects to see a limited rise in iron ore prices in the next round of annual term talks, although it has not yet settled on prices for this year.

The China Iron and Steel Group (CISA), which sees itself as a policy coordinator but acts as the country's top negotiator in the talks, said iron ore prices would increase on the whole but there was little room for the rise.

This is the first time the association has commented on the iron ore price trend for the next fiscal year, after months of resisting a 33% price cut in iron ore prices this current fiscal year that was accepted by rivals elsewhere.

CISA's Vice Chairman Luo Bingsheng declined to comment on whether the rise would be based on the 33% price cut that Australian miner Rio Tinto offered, or a 35% cut that China agreed to with Fortescue Metals Group.

The 2010/11 iron ore price negotiations will start soon, Luo told a media briefing. An industry conference kicked off the talks unofficially last month, with analysts expecting a 10% rise in term prices for the next April-March fiscal year as steel production picks up.

China wants a special deal in annual iron ore price talks as the world's biggest consumer of the steel ingredient, adding it does not have to follow prices set by other countries.

Warning on losses

CISA, which has been complaining of an imbalance in profitability between iron ore miners and steel mills, also warned on Tuesday that domestic mills would suffer a fall in earnings or post losses on a continuous rise in inventories.

It said that domestic crude steel supply would increase by 112 to 117 million tonnes this year, or 25%, as domestic oversupply sharpens on skyrocketing output but weakness in products exports.

China witnessed its crude steel output hitting record levels in August and September and possibly keeping momentum in October as major mills were unlikely to cut production drastically although domestic steel prices were slipping on heavy stockpiles.

The association expects the country's crude steel output to rise 10% from last year to around 550 million tonnes in 2009. Furthermore, CISA expects no big change to China's weak steel products exports and growing imports for the year, saying oversupply was likely to worsen despite continuing growth in domestic steel demand in the fourth quarter and early next year.

The industry group said in a statement that the Chinese market would absorb 47 million tonnes of crude steel in 2009 that went to the export market in 2008, calling on the central government to take countermeasures to overseas protectionism and to control growth in steel imports.