China seeks to change ‘09 iron ore term year -sources
Chinese steel companies are seeking to change the start of the 2009 iron ore term contract year to January from April, as prices of the steelmaking raw material dropped sharply in recent months, two industry sources said on Saturday.
“We are negotiating the plan, as Chinese companies take calendar year as their fiscal year,” a senior executive at the China Iron and Steel Association (CISA) told Reuters on the sidelines of an industry conference.
The official declined to be identified due to the sensitivity of the issue. Another source with direct knowledge with the matter said European steel makers such as ArcelorMittal (ISPA.AS: Quote, Profile, Research, Stock Buzz) and ThyssenKrupp (TKAG.DE: Quote, Profile, Research, Stock Buzz) also supported the plan.
Separately, an official from the China Iron and Steel Association told Xinhua news agency that in October 42 of 71 large and medium-sized Chinese steel makers suffered losses.
The deputy secretary-general of the association, Qi Xiangdong, told Xinhua the losses for those 42 firms totalled 7.8 billion yuan ($1.1 billion) and reflected dropping demand.
China, the world’s largest steel producer, has said it would seek unified iron ore prices from Brazil, Australian and Indian miners in 2009 pricing negotiations.
In 2008 price talks, Brazil’s Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz) negotiated its price first and secured a 65 percent increase in term prices for iron ore fines. But Australian producers Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) (RIO.AX: Quote, Profile, Research, Stock Buzz) and BHP Billiton, who settled later, managed a near 80 percent increase for fines.
The world’s top three iron ore miners — BHP and Rio Tinto plus top producer Vale — control more than two thirds of the global seaborne trade.
That kind of power is particularly potent in the iron ore market, where most of the world’s traded supply is sold under annual contracts that are often hammered out during months of acrimonious negotiations between the three miners and steelmakers.
But their leverage has weakened sharply in recent months, with spot iron ore prices falling below annual contract prices for the first time in years, as fresh demand for steel from autos to construction virtually ground to a halt.
A growing number of analysts are downgrading their price forecasts for 2009 iron ore term contracts, with some expecting a fall of as much as 50 percent, a dramatic reversal after six years of sometimes shocking price rises.
Qi, the steel association executive, said that in 2009, China’s steel producers could be helped by a domestic stimulus plan and by lowered export duties.
But still, he said, “owing to shrinking international demand, exports of steel and iron products will fall sharply in 2009″. ($1 = 6.88 yuan) (Reporting by Alfred Cang; Additional reporting by Chris Buckley; Writing by Miyoung Kim; Editing by Jan Dahinten)
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