Rio Tinto: China may use new iron ore pricing mechanism
- Source: Global Times
- [16:17 November 03 2009]
- Comments
Sam Walsh, chief executive of the iron ore unit of Rio Tinto, the world's second-largest iron ore miner, said Monday that China may use a new iron ore pricing mechanism, softening its stance regarding iron ore prices to Chinese steel mills with negotiations just around the corner.
He says China may use a new pricing mechanism that is exclusive to the rest of the world in the 2010 contract year.
But he warned that any efforts by Chinese mills to seek an unfair benchmark price will result in tougher negotiations.
Walsh said the new pricing mechanism that Rio Tinto is offering to China could directly determine the success or failure of negotiations for the 2010 contract. He added that he is still waiting for further response from the Chinese Iron and Steel Association (CISA) and Baosteel Group, China's steel giant.
Shan Shanghua, secretary-general of CISA previously said in Qingdao that China will not blindly follow prices set by other countries and will not demand steel mills in other nations to use the Chinese prices since "the situation is different".
Vice-chairman of CISA Liu Zhenjiang explained China imports about 500 million tons of iron ore each year, accounting for more than one half of the total trade volume of the offshore iron ore, and it is unfair for China to be subjected to the same price as those countries who import much less.
At present, China still insists on the "Chinese model" for iron ore price negotiations, where the clearing cycle is from January 1 to December 31 of each year, and the price can be lower with a larger quantity, with a unitary price nationwide.
Analysts said that although Rio Tinto did not give out a clear stance on whether the "Chinese model" will be adopted, the latest announcement is a breakthrough for Rio Tinto to offer to use the Chinese price system.
In May and June this year, steel mills from Asia had a 33 percent drop in demand for iron ore from Rio Tinto and BHP Billiton, and a 28 percent price drop for iron ore from Vale for the 2009 prices based on 2008 prices, but CISA did not accept this price, and then reached a temporary price this year with the three giants.
CISA managed to get a 35 percent drop in iron ore prices in August with FMG, Australia's third biggest iron ore producer. China hopes to use this 35 percent as the benchmark price for negotiations for 2010 prices, but the three giants refused.
