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China set to cave in on iron ore pricing

Time is GMT + 8 hours
Posted: 30-May-2006 13:08 hrs

Construction workers tie-up bundles of steel rods in Beijing. China's steelmakers are ready to cave in on a 19 percent price rise for iron after following drawn-out negotiations with the globe's top suppliers, industry sources said

China's steelmakers are ready to cave in on a 19 percent price rise for iron after following drawn-out negotiations with the globe's top suppliers, industry sources said.

Following a meeting in Beijing late Monday, 16 of China's top steel companies had agreed to give in to the increase being demanded by the world's largest miners of the key steelmaking ingredient, the sources said.

"The steelmakers had to accept the 19 percent price hike due to pressure from suppliers," said one industry source who spoke with Chinese steel company representatives who attended the meeting.

Another source who also talked with people at the meeting said Chinese steelmakers had agreed to no longer fight for lower prices after the negotiations had seen other steelmakers around the world agree to 19 percent.

However Dong Zhihong, the China Iron and Steel Association's marketing director, denied Chinese steelmakers had agreed to the price hike.

"Talks are ongoing," Dong insisted.

Although the Chinese steel firms had agreed to the rise, they had still not signed any contracts with the world's suppliers, the sources said.

China's rejection of a significant rise in contracting pricing of iron ore has caused the negotiations to extend well past the traditional April 1 deadline.

China had counted on its market weight to force the world's three largest iron ore producers -- Anglo-Australian group Rio Tinto, Brazil's Companhia Vale do Rio Doc and Australia's BHP Billiton -- to agree to lower pricing.

China consumes around 45 percent of the earth's iron ore, more than another nation.

Its strategy, however, backfired as the iron ore producers refused to accept a lower rise and increasingly impatient steel mills elsewhere around the world agreed over the past two weeks to rises of 19 percent.

In the past, Japan and Europe have set annual contract prices, but China was keen this year to take a bigger role in the setting of raw material prices after being forced to agree to a record rise of 71.5 percent in 2005. — AFP