Iron Ore Still Rising

Chinese media outlets are hinting that Chinese steelmakers will not accept a major increase in iron ore prices, such as the 19 percent increase agreed to by ThyssenKrupp AG of Germany.

The China News Daily has reported that the China Iron and Steel Association (CISA) has already announced its disinclination to accept such a price hike.

The trade group has indicated that “the price accepted by the German company would not be taken as the global benchmark, as European mills are represented by Arcelor SA in negotiations for long-term prices [and] Chinese steelmakers are represented by Shanghai-based Baosteel Group,” the China News Daily reports said the CISA deputy secretary-general as saying.

Nonetheless, the agreement could still have some impact on Baosteel’s negotiations, despite fears that the 19 percent increase is more than the Chinese buyers can afford.

ThyssenKrupp’s agreement was made with Brazil’s iron ore mining firm Cia Vale do Rio Doce. It is the first agreement this year between a major steelmaker and an iron ore producer, according to China News Daily.

Baosteel, Arcelor SA and Nippon Steel Corp. are still negotiating with the Brazilian iron ore firm as well as the Anglo-Australian groups Rio Tinto Ltd. and BHP Billiton Ltd., in negotiations that have been stretched out past the normal time period.

The iron ore miners could be bargaining from a position of strength, as China’s demand for iron ore increased by 75.9 million tons and 121.8 million tons in 2004 and 2005 respectively, according to the China News Daily.

With ferrous scrap prices at historic highs, it is questionable whether Chinese steelmakers can expect to shift much of their melting needs to scrap-based production.