Domestic steelmakers face tough Q3

08:41, June 09, 2010      

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China's steel industry will face its toughest time of the year during the third quarter, the head of the parent firm of Baoshan Iron & Steel, China's biggest steelmaker, said Tuesday.

Iron ore contract prices will peak in the third quarter, while steel consumption by the auto and housing sectors will be sluggish, Xu Lejiang, chairman of Baosteel Group, said.

"The third quarter will be the most difficult time of the year because that's when iron ore prices will peak if contracts are based on quarterly pricing as the three major iron ore suppliers have requested," Xu said.

Some small steel mills and traders may spurn iron ore purchase contracts and turn to the spot market for ore in the third quarter, when spot prices are likely to fall below contracted prices, Xu added.

However, Baosteel will not buy in the spot market, Xu said, adding that the company would stick to long-term iron ore supply contracts, although it harbors doubts about the quarterly pricing mechanism the miners have initiated this year to replace annual agreements.

China's largely state-run steel industry has steadfastly insisted on adhering to annual pricing, although in practice it appears to be acceding to quarterly deals.

"We haven't accepted the new pricing system but there's nothing we can do about it by ourselves. We're still trying to negotiate," Xu said.

Xu said spot iron ore prices were certain to fall in the fourth quarter as steel mills would curtail production.

Source: Global Times


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