BEIJING, Jul. 3, 2009 (Xinhua News Agency) -- The stand-off between China's steel mills and the world's major iron ore miners continues three days after the June-30 deadline to agree ore prices for the next 12 months.
But who will blink first in the ongoing guessing game over how the global economic slowdown will affect the future of supply and demand?
The side with the best view of future prices will win the negotiations, say analysts.
Both the China Iron and Steel Association (CISA), which heads the talks on behalf of major Chinese steel mills, and ore producer Rio Tinto are refusing to comment on the progress, except to say talks are continuing.
The three iron ore giants -- Vale of Brazil, Rio Tinto and BHP Billiton (NYSE:BHP) -- have settled the 2009-2010 iron ore price contracts with major steel makers elsewhere in Asia and Europe, agreeing on price cuts ranging from 28 to 33 percent. This would equal to 75 to 80 U.S. dollars per tonne, including freight costs.
Once Rio Tinto settles the 2009-2010 contract prices with the CISA, Vale and BHP Billiton will follow or set their own prices after further talks, says Wang Guoqing, a Beijing-based analyst with Lange Information Consultation Co.
Rio Tinto is sticking to its offer of a 33-percent price cut for 2009-2010 contracts, while the CISA insists on a deeper cut.
"We have agreed price settlements in a number of major markets this year, but not in China," said Rio Tinto spokesman Gervase Greene in an email to Xinhua on June 30. "We are officially in discussions still, and will not speculate on how our discussions are faring, or why."
However, the CISA believes the 33-percent price cut "failed to reflect the real supply and demand situation on the international market and would lead to overall losses for Chinese steel companies."
The steel makers' confidence comes from bleaker expectations of a quick recovery of the world economy and that demand for iron ore would remain weak. Their determination is supported by a global ore supply surplus estimated at between 200 million and 300 million tonnes.
"Iron ore demand would surely be lower in 2009 than in 2008, and a current oversupply situation, in which falling steel production is occurring as iron ore production capacity increases, will not go away soon," said a report from the United Nations Conference on Trade and Development released on June 26.
The UNCTAD expected world steel demand to fall as much as 15 percent this year.
As the world largest iron ore importer, China imported 443 million tonnes of iron ore in 2008, more than half of the world's total shipments.
