China Seeks New Iron Ore Price Model
Post on: 2011-11-02 By: admin
buyer, said it’s held talks with Vale SA (VALE3), Rio Tinto Group and
BHP Billiton Ltd. (BHP) to set up a new pricing mechanism after a
plunge in cash market prices.
“We hope to build a new stable, transparent, fair and
reasonable pricing mechanism,” Zhang Changfu, vice chairman and
secretary general of the China Iron and Steel Association, told
reporters today in Beijing. “We wish to make it more well-
organized and healthy.”
Iron ore prices for immediate delivery fell 32 percent this
month on China’s credit tightening and slowing steel demand from
builders and automakers. Most Chinese customers are seeking to
replace quarterly contracts with spot pricing, the largest ore
producer, Vale, said last week.
Baoshan IronSteel Co., China’s biggest mill, is in talks
with Vale on fourth-quarter ore prices, and expects its raw-
material costs to drop under a new pricing model, General
Manager Ma Guoqiang said today in a webcast meeting with
investors. He didn’t provide further details on the new model.
Vale, together with BHP and Rio, in 2010 abandoned a 40-
year custom of setting prices annually in favor of quarterly
iron ore contracts as spot prices gained. The quarterly
contracts are based on a three-month average of spot price
indexes for the period ending a month before the onset of the
The plunge in iron ore prices is accelerating a move to
shorter pricing methods and closer to spot, Rio’s Chief
Executive Officer Tom Albanese told analysts last week. Rio, the
second-largest iron ore producer, sold about 86 percent of its
output on a quarterly basis, he said.
BHP, the world’s largest mining company and third biggest
iron ore producer, is selling the “vast majority” of its iron
ore on monthly prices, Chief Executive Officer Marius Kloppers
said this month. The top three producers control about 62
percent of the total seaborne trade, according to Bloomberg
Industries.
Iron ore prices may drop to as low as $95 a metric ton, the
lowest in more than two years, in the short term before
rebounding next year, Morgan Stanley analysts Peter Richardson
and Joel Crane said today in an e-mailed report. They traded at
$116.90 a ton on Oct. 28, according to The Steel Index Ltd. and
have fallen for 15 days, the longest streak since July 2010,
’Turning Point’
The “turning point” of a global iron ore shortage may
come at the end of next year or 2013 as new mining projects come
on stream, Baoshan’s Ma said today. The company had previously
forecast the market to move into surplus in 2014.
Rising competition and raw material costs squeezed profit
margins for China’s medium and large steelmakers to 2.53 percent
in September and 2.99 percent in the first nine months, Ma said.
Shanghai-based Baoshan’s profit fell 51 percent to 1.24 billion
yuan in the third quarter from a year ago, the company said Oct.
28.
Chinese prices of hot-rolled coil, a benchmark product,
gained 2.2 percent last week, the first weekly gain since the
start of September, narrowing the price decline to 13 percent in
the past two months, according to researcher Beijing Antaike
Information Development Co.
China’s Hebei province, the biggest steelmaking region, has
shuttered more than 20 iron furnaces and 20 rolling plants,
partly because of the price plunge, CISA’s Zhang said today.
To contact the editor responsible for this story:
Rebecca Keenan at
rkeenan5@bloomberg.net
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Article original from: http://www.bloomberg.com/news/2011-10-31/china-seeks-new-iron-ore-price-model.html
