Chinese steelmakers seem to be faltering in their attempt to wrest control from global miners in annual iron ore price negotiations, highlighted by a top Chinese mill executive’s acknowledgement that 2010 benchmark prices for the steelmaking ingredient are expected to rise “a lot” and a senior government official saying he had lobbied the Australian government to intervene with miners on the issue.

Iron ore benchmark prices, which are set annually in secretive
negotiations between Asian customers and miners Rio Tinto Ltd., BHP
Billiton Ltd. (BHP) and Vale SA (VALE), are crucial to China as they
determine the bulk price for an industrial commodity essential to
construction and development.

“Based on what’s going on now, not only are iron ore prices going to
rise, iron ore prices are going to rise a lot,” Shen Wenrong, chairman
of Jiangsu Shagang Corp., the country’s largest privately owned steel
mill, acknowledged to Dow Jones Newswires on the sidelines of the
annual meeting of the China Iron and Steel Association Thursday.

Last year’s iron ore talks collapsed without result after China held
out for deeper discounts than the miners had already settled with other
Asian customers, against a backdrop of China arresting Rio Tinto
employees, including Australian citizen Stern Hu, on charges of
commercial spying and bribery.

But compared with China’s bluster last year, when it stridently
demanded deeper discounts for its mills, this year’s tone and volume
has been greatly modulated.

While Shen didn’t specify the range he had in mind, the notion of a
substantial increase was a departure from the prevailing sentiment late
last year, when Yang Siming, chairman of mid-sized Nanjing Iron and
Steel Group, said he expected a price rise of 10% over 2009 benchmark
terms.

In late December, the China Iron and Steel Association told reporters that miners wanted a price hike of 20%-30%.

According to domestic media reports this week, the miners are now
pushing for a 40% price hike. Mining companies declined comment.

The rising expectations follow a three-month rally in iron ore spot
prices, which at around $123 a metric ton Friday are roughly double
last year’s benchmark rates, according to Metal Bulletin data. The
direction of year-on-year benchmark price change, generally track spot
price movements, though the magnitude of change is usually smaller for
the benchmark.

China appears unable to leverage its status as the world’s biggest
buyer of iron ore with miners as supply-side fundamentals, essentially
controlled by a handful of global producers, trump any bargaining power
Chinese buyers might otherwise have had.

On the strength of bullish indicators in the broader economy, China’s
apparent crude steel demand this year is forecast to reach 620 million
tons, up about 10% from 2009, according to association Chairman Deng
Qilin, who is also president of China’s third-largest steelmaker Wuhan
Iron and Steel Group Corp.

The quandary has led the Ministry of Industry and Information
Technology, which has jurisdiction over the steel industry, to quietly
try to apply pressure on the Australian government to intervene in the
price talks. Vice Minister Miao Wei on Friday told association members
during the day-and-a-half annual meeting that he recently brought up
the issue of iron ore price negotiations with an Australian embassy
official to signal Beijing’s support for its steelmakers.

“The (Australian embassy) official told me that this is a commercial
matter, and the (Australian) government is not involved,” Miao said.

Source: Dow Jones

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