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Chinese steel mills will face greater pressure in the on-going long-term contracted iron ore benchmark price negotiations as Australian miners have postponed recent iron ore deliveries, Vale's iron ore shipments from Brazil have been disrupted since December last year and the Indian government is considering increasing the export tax on iron ore, analysts and officials close to the industry told Interfax today.
Chinese steel mills recently received notice from Australian miners, including Rio Tinto, that they will postpone long-term iron ore contract deliveries due to a recent hurricane.
"The notice we received from Rio Tinto at the beginning of the year did not specify how long it will take to resume normal iron ore deliveries. However, regardless of whether a force majeure has coincidentally cropped up during negotiations or the miners are playing some kind of game of their own calculation, the delay will definitely tighten iron ore market supply and make it more difficult for steel mills to gain the upper hand in the negotiations," a Tangshan Iron and Steel Group (Tanggang) iron ore import department official, who asked to remain anonymous, told Interfax today.
The Tanggang official said that any attempts from miners to push up contracted prices would be short-sighted, as irrationally high raw material costs will not only frustrate the world's largest iron ore consumer, China, but also damage the whole industry worldwide.
"A reasonable price increase would be around 20 to 30%, but a higher price hike will hinder sustainable development and will not lead to the desired win-win situation for both steel mills, miners and the industry," he said.
A Laiwu Steel iron ore department official, who wished to remain anonymous, told Interfax today that the company is not aware of any delay in iron ore deliveries from Australia, explaining that the hurricane occurred in an area that did not affect its supply.
However, other Chinese steel mills were not available for comment when reached by Interfax today.
"It is commonplace for miners to encounter difficulties in meeting delivery times, as adverse weather conditions, accidents, and a variety of other incidents can affect what happens at the mine, port and sea. However, it is short-sighted to either deliberately postpone deliveries or cut production," another industry analyst, who also asked to remain anonymous, told Interfax today.
Meanwhile, India's Ministry of Steel has proposed levying a tax of between 10% and 15% on iron ore exports in order to conserve mineral resources for the development of India's own steel industry, Indian domestic media reported on 2 January. This prompted Chinese analysts to voice concern over the impact that such a tax will have on Chinese steel mills.
The Indian Ministry of Steel has already submitted pre-budget recommendations to the Ministry of Finance for the proposed duty to be based on current FOB prices, instead of the current system where specific rates are fixed for every tonne of iron ore shipped out of the country. The budget is expected to be completed on 29 February, Indian domestic business newspaper, MINT, reported on Wednesday.
Vale, the Brazilian iron ore giant formerly known as Companhia Vale do Rio Doce (CVRD), suspended operations at its Itaguai maritime terminal in Brazil due to an accident in mid-December last year, which reduced Vale's iron shipments by 60,000 tonnes per day.
However, this has not severely affected company exports as Itaguai is Vale's smallest iron ore shipping port, with an annual shipload capacity of 25 million tonnes of iron ore, compared with a shipping capacity of 200 million tonnes per year for the entire company. Vale recently announced that it will reopen the Itaguai maritime terminal by the beginning of February this year.
China's imported iron ore market was relatively stable last week, with the delivery price of grade 64.5% Brazilian concentrate in China's major ports trading between RMB 1550 ($212.89) per tonne and RMB 1580 ($217.02) per tonne last week, while the delivery price of grade 63.5% Indian concentrate moved between RMB 1,480 ($203.28) per tonne and RMB 1,500 ($206.03) per tonne.