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China has edge in iron ore price talks?
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08:33, June 05, 2009

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A global iron ore oversupply coupled with massive stockpiles in China's own iron ore market will drastically increase the odds of Chinese steel mills in securing more cuts in ore price negotiation with world suppliers.

China Iron and Steel Association (CISA ), the watchdog of ore imports and exports, refused on May 31 to accept the iron ore price reduction between 33 percent and 44 percent reached between Rio Tinto and Japan's Nippon Steel Corp, and insisted on a price reduction of more than 40 percent.

Chinese analysts and insiders believe a global excessive supply and a considerable decline in demand impose great pressure on the miners, mainly in Australia, India and South America, amid a serious worldwide economic recession.

"The global iron ore supply surplus is estimated to be between 200 million and 300 million tons," said Luo Bingsheng, vice chairman of the CISA in Shanghai last week.

Total iron ore demand is expected to drop between 150 million and 200 million tons this year, according to Xu Xiangchun, chief information officer of Mysteel.com on Wednesday.

Luo also said China's steel maker would turn to the on-the-spot pricing, abandoning the traditional benchmark pricing system, if the suppliers are not compromising on the 50 percent price cut requested by Chinese mills.

Despite a 33 percent price cut offered by the suppliers, the long-term, contract price is still US$8 to US$9 higher than the spot price, insiders said.

Huge stockpiles should prompt China's steel makers to call for a much bigger cuts in iron ore prices in the upcoming negotiation, officials and market watchers said.

The latest data from the www.umetal.com shows that iron ore stocks at Chinese main ports has exceeded 70 million tons as of May 31.

Luo estimated that China's overall stocks had surpassed 110 million tons in consideration of 30 million tons of stocks by steel plants.

Analysts and insiders believe the negotiation will drag on beyond the end of June.

According to Luo, China's steel mills lost 5 billion yuan (US$732 million) in the first four months this year.

People's Daily Online – Xinhua

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