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Iron ore price negotiations - Big 3 nervous on production cut
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Wednesday, 15 Sep 2010
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Market insiders said that the big three miners have now become nervous on mills’ production cutback and called frequently the mills in north China to confirm the operation situation.

It's said that the gradually spreading of recent campaign on electricity usage limit and pollutant emission control has attracted big miners attention and they are now actively checking the actual operation situation.

They don't believe the campaign could bring much effect at first, because the same topic has been talking for years but they turn to nervous after the communications with several mills in north China.

An official from Hebei based steel mill said that "I have received phone calls from all of three miners to check about our operation situation.

The iron ore spot market now is very quiet, steel production cuts in Hebei and Shanxi have greatly affected the transaction and more importantly, market sentiments. Many traders concern the prices could further drop.

Actually, days ago a report from Barclays warmed that as China mills are now consuming their inventories at ports and governments’ action to control the steel production, China iron ore demand would decline. But others hold different views.

An analyst that it is heard that the policy of energy saving and electricity limitation is not well enforced in Tangshan. Though Tangshan area has the target to cut 46% of steel production, the steel mills do not strictly implemented such policy in practice. It is said that those area were supposed to suspend operation have now started to recover power supply.

Mr Xu Xiangchun analyst of Mysteel said that the policy of suspending operation and limit production seems too strict to the steel mills in Hebei Province.

Mr Xu said that "According to the target of the 11th Five Year Plan, we just need to reduce the consumption of coal by 7.3 million tonnes if this energy saving mission to be undertook totally by steel mills, the output of crude steel will decreased by 11.5 million tonnes in the coming several months.

However, in regard to the energy saving plan in Tangshang area along the target is to restrict the steel production of 12.4 million tonnes which combines with same action in other regions would greatly surpass the target. Therefore, he predicts that the production and operation suspending will see a much relaxed trend than that of beginning.

He said that since the supply of the iron ore remains tight and the policy of energy saving is not sustained , the surge of steel price will surely ends the production cutback and steel mills will start their operations again which will in turn support the iron ore price.

(Sourced from MySteel.net)
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