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Sunday 28 September 2008
China’s Tug-Of-War With Vale
China would rather not have Brazilian iron ore imports than have to pay extra after already negotiating a hefty price increase in February -- and the turbulence in the global economy may give it the upper hand. PDF
China would rather not have Brazilian iron ore imports than have to pay extra after already negotiating a hefty price increase in February -- and the turbulence in the global economy may give it the upper hand.
Beijing threatened to cut back or boycott imports of iron ore after Brazil’s Companhia Vale do Rio Doce tried to hike prices for Asian customers after agreeing to one-year pacts in February.
“In the near term China will use domestic iron ore and reduce or refrain from using Brazilian iron ore,” the state-run newspaper China Securities Journal reported, citing Luo Bingsheng, head of the China Iron and Steel Association.
According to TradeTheNews.com, the reports out of China indicate that this may not be a permanent measure, but more of a short-term move. The China Iron and Steel Association said the move is reasonable because of weak demand for steel products domestically and abroad, as well as price and quality advantages for domestic ore products.
Earlier on Friday, the China Industry Group said Chinese stainless steel output will reach 8 million tons, while demand will be 7 million tons, indicating it would not have much need for Brazilian ore.
Vale’s shares tumbled 6.2%, or $1.37, to $20.89, in New York trading. The slide extended to its two big Anglo-Australian competitors: Rio Tinto lost 7.5%, or $22.00, to $271.00, a share, and BHP Billiton fell 5.8%, or $3.13, to $51.10.
On Sept. 3 Vale announced that it was negotiating with its Asian clients for an 11.0% to 11.5% price hike, depending on the type of iron ore purchased, to align prices with those in Europe. This increase is in addition to the 65.0% increase agreed upon in February. (See “Rising Iron Ore Costs Spell Tough Year For Steel Makers.”) The company was unable to explain why it charged different prices for its European and Asian customers in the first place.
But with the global economy gasping for breath, Chinese steel industry officials say they do not have to rely on iron ore imports and will boycott them rather than pay even more than already agreed.
Vale spokeswoman Fatima Cristina said China is Vale’s biggest buyer of iron ore. In the second quarter, China bought 23.817 million metric tons, or 30.2% of the volume Vale sold, up from 22.781 million metric tons, or 29.8%, in the first quarter.
Vale’s chief executive, Roger Agnelli, said he doesn’t believe that China’s steel industry can survive without Brazil’s iron. Agnelli says that “the Chinese market is Vale’s” and that if “Vale shipments to China were stopped and suspended,” China’s steel industry would crumble.
Vale says talks with Chinese buyers are continuing.
Price negotiations have been a sore spot between China and its iron-ore suppliers, with wrangling beginning as soon as the previous year’s negotiations have concluded. China is the world’s biggest steel producer and consumer.
Around November each year, each of the three biggest iron-ore miners hold closed-door talks with the world’s main steel-producing regions, each of which is represented by a single steelmaker, to negotiate a single contract price. (See “Japan Steelmakers Agree To Iron Ore Price Hikes.”)
When one of the miner’s strikes an agreement with a steelmaker, the benchmark will be immediately adopted by the other two.
1 comment:
China’s Tug-Of-War With Vale
Ruthie Ackerman
28 September 2008
China would rather not have Brazilian iron ore imports than have to pay extra after already negotiating a hefty price increase in February -- and the turbulence in the global economy may give it the upper hand.
Beijing threatened to cut back or boycott imports of iron ore after Brazil’s Companhia Vale do Rio Doce tried to hike prices for Asian customers after agreeing to one-year pacts in February.
“In the near term China will use domestic iron ore and reduce or refrain from using Brazilian iron ore,” the state-run newspaper China Securities Journal reported, citing Luo Bingsheng, head of the China Iron and Steel Association.
According to TradeTheNews.com, the reports out of China indicate that this may not be a permanent measure, but more of a short-term move. The China Iron and Steel Association said the move is reasonable because of weak demand for steel products domestically and abroad, as well as price and quality advantages for domestic ore products.
Earlier on Friday, the China Industry Group said Chinese stainless steel output will reach 8 million tons, while demand will be 7 million tons, indicating it would not have much need for Brazilian ore.
Vale’s shares tumbled 6.2%, or $1.37, to $20.89, in New York trading. The slide extended to its two big Anglo-Australian competitors: Rio Tinto lost 7.5%, or $22.00, to $271.00, a share, and BHP Billiton fell 5.8%, or $3.13, to $51.10.
On Sept. 3 Vale announced that it was negotiating with its Asian clients for an 11.0% to 11.5% price hike, depending on the type of iron ore purchased, to align prices with those in Europe. This increase is in addition to the 65.0% increase agreed upon in February. (See “Rising Iron Ore Costs Spell Tough Year For Steel Makers.”) The company was unable to explain why it charged different prices for its European and Asian customers in the first place.
But with the global economy gasping for breath, Chinese steel industry officials say they do not have to rely on iron ore imports and will boycott them rather than pay even more than already agreed.
Vale spokeswoman Fatima Cristina said China is Vale’s biggest buyer of iron ore. In the second quarter, China bought 23.817 million metric tons, or 30.2% of the volume Vale sold, up from 22.781 million metric tons, or 29.8%, in the first quarter.
Vale’s chief executive, Roger Agnelli, said he doesn’t believe that China’s steel industry can survive without Brazil’s iron. Agnelli says that “the Chinese market is Vale’s” and that if “Vale shipments to China were stopped and suspended,” China’s steel industry would crumble.
Vale says talks with Chinese buyers are continuing.
Price negotiations have been a sore spot between China and its iron-ore suppliers, with wrangling beginning as soon as the previous year’s negotiations have concluded. China is the world’s biggest steel producer and consumer.
Around November each year, each of the three biggest iron-ore miners hold closed-door talks with the world’s main steel-producing regions, each of which is represented by a single steelmaker, to negotiate a single contract price. (See “Japan Steelmakers Agree To Iron Ore Price Hikes.”)
When one of the miner’s strikes an agreement with a steelmaker, the benchmark will be immediately adopted by the other two.
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