December 04, 2008

Iron ore price negotiations – May last for a long time

It is reported that annual iron ore contract talks between global steel mills and iron ore majors may not be settled until the second quarter of next year after a jump in cash prices. Baosteel, the biggest steel maker in China and CVRD agreed to a 9.5% gain in near record time on December 21st 2006 but this time they are reported to be far apart on how much contract prices will have to rise.

Mr Malcolm Southwood and Mr Paul Gray of Goldman Sachs in a report last week said that "With hindsight this was a generous outcome for the buyers, we anticipate a more protracted negotiation process this year, an agreement may not be reached until the second quarter of 2008." Goldman Sachs JBWere said that as rates for individual shipments of the commodity from India have almost doubled over the past five months, contract prices could rise more than 50%.

Credit Suisse also said that "Despite the tight market conditions, we expect tough, drawn out negotiations. The level of the increase will be determined effectively by the ability of steelmakers to pass on additional costs, totally or partially, through steel prices."

CVRD, Rio Tinto and BHP Billiton are slated to started talks this month with steel makers in Asia for 2008 benchmark prices effective from April 1st 2008.