China Steel & Iron Association has called a conference of the largest domestic steelmakers to work out a common stand in bargaining with major iron ore producers in the 2009 round of price negotiations starting next month.
This round of negotiations is expected to be different from previous ones that were largely dominated by the ore suppliers. This time, the market situation has changed as fallout from the global credit crisis has greatly depressed demand.
The much enhanced bargaining power of Chinese steelmakers in this buyers' market was clearly demonstrated by their boycott of Vale, the Brazilian mining giant which unilaterally raised ore prices on Sept 3.
Shrinking steel demand, plus a sagging property market and dropping car sales have pushed the prices of Chinese steel products down by an aggregate of 40 to 50 percent since early October.
Steelmakers are expected to further cut their output to combat the sharply falling prices of steel products.
"The only way out for steel producers at the moment is to slash production to fight the drop in steel product prices," said Li Bing, director of the mining resources trading department at Ma Steel in Hebei province. He added that Ma Steel has cut its production by 30 percent this month.
Despite dwindling demand for steel products, many Chinese steelmakers, in compliance with previously agreed trading contracts with ore suppliers, are continuing to import iron ore from Australian suppliers at the contract price, which is much higher than the current spot prices.
Baosteel last week announced a further drop in the prices of its major products from 1,700 to 1,000 yuan per ton.
"Falling spot iron ore prices and the output reduction by Chinese steelmakers will combine to strengthen their bargaining power in the negotiations," said Du Wei, a senior analyst at Umetal, a leading domestic steel industry consultancy firm.
Source: China Daily