WHILE Lakshmi Mittal steals the limelight with his brazen bid for Arcelor, in the wings another vital deal is pending over the price of iron ore.
Pricing talks between the big Japanese steel producers and the global iron ore giants, Rio Tinto, BHP Billiton and CVRD of Brazil, have reached an impasse. The mining triumvirate, which between them control almost three quarters of the global sea-borne iron ore trade, are demanding between 20 and 25 per cent more.
It sounds steep but last year the iron oligopoly secured a 72 per cent price increase in response to rampaging demand growth from China, and the mills of the People’s Republic will suck in even more ore this year. China’s Metallurgical and Mining Association predicts that imports of iron ore will rise 16 per cent this year, boosting China’s share of global consumption from 35 per cent to 44 per cent.
The annual price negotiations between Nippon Steel, JFE and Kobe Steel and their mining counterparts are a steel industry benchmark, setting the rate, from April 1, for a vital steel ingredient.
Iron ore spot prices are up 20 per cent on the year, giving the miners strong arguments that the annual contract should reflect a similar uplift.
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Steel producers obtained a little relief yesterday when JFE agreed an 8 per cent cut in the price of coking coal, the fuel used in smelters. Last year, coking coal prices doubled to $120 a tonne and yesterday’s slight reduction was greeted with delight by mining investors. The price of BHP Billiton stock rose 5 per cent in celebration of a good outcome for the miner, which escaped forecasts of much bigger cuts of between 10 per cent and 20 per cent.