As ore price rises, Chinese steel feels pressure from Japan

13:00, March 29, 2010      

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With the iron ore price negotiations deadline on April 1 drawing near, China's steel enterprises are finding it increasingly hard to get by. This year they will at least pay 100 billion yuan more due to rising iron ore prices, and this amount is more than double last year's steel profits.

According to Japanese media, Japan's major steel enterprises have reached agreement with the world's largest iron ore producer, Vale, and decided the price of iron ore imports this year's to be 110 U.S. dollars per ton. This is twice the price it was last year.

Starting in April this year, Vale will supply iron ore to the Japanese steel firms at the new price. In the meantime, the Japanese side and the other two mining giants, Rio Tinto and BHP Billiton, may also agree to set iron ore prices at the level of 110 U.S. dollars per ton.

Japanese steel's compromise with the three major iron ore giants means a price negotiation practice that has been in place for the last 40 years has been abandoned. In its place will be market-oriented indices, giving the market a greater role in setting benchmark rates. This is favored by the three giant mining firms.

According to data released by China's General Administration of Customs, last year, China imported iron ore of about 630 million tons with a total amount of more than 50 billion U.S. dollars, converted full-year average price of imported iron ore of nearly 80 U.S. dollars per ton. China's imports of iron ore this year will exceed an increase of 10 percent. According to the present market price, the 63.5 percent grade iron ore price has reached 157 U.S. dollars per ton, about twice the average level of last year, and China's iron ore costs may double to more than 100 billion U.S. dollars.

The rising costs signal steel prices will rise. Recently, Baosteel and many steel enterprises have already seen a substantial price increase in steel prices in April. Japanese media also said that in the future, Japan's steel prices will inevitably increase, resulting in price increase of cars, home appliances and other downstream manufacturers.

Steel industry analyst He Rongliang said that increased costs of steel enterprises will ultimately be shouldered by consumers. Since steel is a basic industry, it is bound to increase inflationary pressure in China.

By People's Daily Online
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