UPDATE:Some China Mills Fix Provisional Prices For Iron Ore
July 15 2009 - 5:06AM
Dow Jones News
Some Chinese steel mills have agreed to provisional prices for
iron ore until a final price is set, executives from three Chinese
steel companies said Wednesday.
An official at Hebei Iron and Steel Group said his mill has
reached a tentative price of a 33% discount from last year's
benchmark rate with both Rio Tinto Plc (RTP) and BHP Billiton Ltd.
(BHP), as well as a 28% discount from last year's rate with Vale
S.A. (VALE).
"We're still waiting to hear from the China Iron and Steel
Association and Baosteel Group Corp. on the final inked iron ore
price," said the Hebei official, who declined to be identified.
"And after that, we'll pay the price difference to ore miners."
Meanwhile, the China Iron & Steel Association and leading
mining companies have reiterated they are continuing negotiations
for a final price settlement for the 2009-10 contract year.
All shipments contracted under long-term pricing arrangements in
the new contract year from April 1 have been under provisional
prices and the discounts ranged between 20% and 40% from last
year's prices.
Several key buyers adopting a 33% discount as the provisional
price now indicates Chinese steel mills expect that to be the final
price to emerge from current talks between government-linked
negotiators and major mining companies.
The urgency to agree on provisional prices was caused, in part,
by spot prices moving up in recent months. When spot prices were
lower in the early part of the year, many buyers and sellers had
resorted to spot pricing of the commodity.
In Hebei's case, the executive said the provisional deal was
recent and would take effect "from now."
Details of the provisional deals emerged amid talk earlier in
the day that Chinese mills had reached a final agreement with
miners on this year's contract prices.
But Qi Xiangdong, a deputy secretary-general of CISA, said he
wasn't aware of any final agreement on term prices. He declined to
comment further. The association is leading this year's
negotiations with miners.
Rio Tinto and BHP Billiton also declined to comment on reports
of a final agreement but sources close to the miners said the
reports were incorrect and that no final deal had been struck.
Meanwhile, other Chinese mills have also acknowledged reaching
similar provisional pricing arrangements with miners.
Hunan Valin Iron and Steel Group Co.'s general manager Cao
Huiquan, said his company currently pays for iron ore shipments
from miners based on a 33% provisional discount, with the
difference to be adjusted once a final deal is reached.
"People may misunderstood what a provisional price is. This is
not the final price," said Cao. "Regardless of whether we pay 67%
of last year's price, or some other amount, we will follow CISA's
decision on a final price agreement."
Analysts have long spoken of provisional deals put in place as
Chinese companies didn't have a deal even after Japanese and Korean
steel makers fixed this year's contract prices which represent a
33% to 44% cut from last year's levels.
Hu Kai, an analyst at Beijing-based Umetal consultancy, who is
in close contact with miners and mills, said many mills, including
Baosteel, Shougang Group, Anshan Iron and Steel Group, have agreed
to provisionally price iron ore at a 33% discount.
Hu, however, said these deals have been with Rio and that he was
not aware of any similar deal with BHP.
-Yue Li, Juan Chen and Chuin-Wei Yap contributed to this story,
Dow Jones Newswires; 8610 6588 5848; chuin-wei.yap@dowjones.com