CHINA / National

China accepts 19% rise in iron ore price
By Jiang Wei (China Daily)
Updated: 2006-06-21 06:11

Chinese importers yesterday agreed to a 19 per cent rise in the price of iron ore, the second biggest increase in 25 years.

Shanghai Baosteel Group, representing Chinese iron ore importers in talks with major international suppliers, accepted the price rise from BHP Billiton, the world's largest resources company.

BHP Billiton issued a statement confirming it reached agreement with Chinese customers on prices for contracted iron ore tonnage for the 2006 contract year.

"Prices increased by 19 per cent over prices negotiated in respect of the 2005 year across the range of lump and fines iron ore products supplied by BHP Billiton," it said.

The price rise had been agreed a couple of weeks ago by some European, Japanese and other Asian steel producers.

It means Chinese iron ore importers will have to pay about 10 billion yuan (US$1.25 billion) more each year.

Chinese steelmakers will sign contracts with Brazil's Cia Vale do Rio Doce (CVRD), and the London-based Rio Tinto Group, the world's other two major iron ore producers, in one or two days, said an unnamed source close to the situation.

CVRD, BHP Billiton and Rio account for 75 per cent of global seaborne iron ore trade.

The Chinese firms' talks with suppliers had been prolonged for weeks compared with other iron ore buyers.

Chinese firms had insisted that suppliers should take into account the high demand of the Chinese market, and suggested a lower price.

The nation's steelmakers, which account for 43 per cent of global imports of iron ore, tried to set prices after a record increase in 2005. But their bargaining position weakened on May 16 when Germany's ThyssenKrupp AG became the first steelmaker globally to agree to the new price.

The 19 per cent hike is the second-biggest price jump in 25 years, according to ABN Amro. It follows a record 71.5 per cent rise in 2005.

Although Baosteel failed to get a favourable result, the talks still set a good example, said Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Co-operation of the Ministry of Commerce.

"It is the first time domestic iron ore importers have asked for Chinese factors to be considered during iron ore negotiations," he said. "And in order to gain more say for China, they should stick to collective negotiation in the future."

In the past Chinese iron ore importers and steel makers negotiated the iron ore price separately, which often resulted in speculation in pricing.

Chinese buyers were forced to accept the sharp price rise last year.

Mei also noted that Chinese negotiators should pay more attention to issues such as reform of the domestic steel industry and collaboration with other major buyers.

"They (Chinese firms) are less experienced compared with their negotiation rivals, who have controlled the market for years," he said.

Chinese imports of iron ore rose by 23.5 per cent to 108 million tons in the first four months of this year.

(China Daily 06/21/2006 page1)