China sends warning to BHP Billiton, Rio Tinto
By Rowan Callick
October 31, 2007 07:12am
THE Chinese steel industry yesterday sent two strong messages to Australia's iron ore producers, as negotiators prepare to fix next year's ore price: steel production is moderating as exports are curbed, and there will be no concessions to acknowledge soaring shipping rates.
Three years ago it was BHP Billiton that attempted in vain to push the Chinese mills -- which last year bought $7.64 billion worth of Australian ore -- to shift the negotiated price from a free-on-board basis to the landed cost, to recognise the advantage in buying more from Australia.
This year it is Rio Tinto that is sending China a similar message, including one to the country's large annual iron and steel conference in Dalian.
Yesterday, after a routine presentation by BHP about its expansion plans, Rio Tinto's general manager China operations for iron ore, Hu Shitai, said the landed cost of a tonne of ore from Australia was less than $US80, while that from Brazil was $US180 and from India -- bought overwhelmingly on the spot market -- $US170.
The moderator of the session, Zhang Jingang, deputy secretary general of the China Iron and Steel Association (CISA), responded that the profitability of steel makers had declined this year, and that some were already losing money -- and could thus not afford further price rises.
Another Chinese response to Australia's claim -- through its major speakers at the conference -- has been to praise the world's biggest single producer, Brazil's CVRD, which last December caught the industry by surprise, settling swiftly a comparatively modest 9.5 per cent rise of the basic price with China's largest mill, Baosteel, which negotiates on behalf of the whole sector.
Next year, said Luo Binsheng, secretary general of CISA, the rise in iron ore imports would slow to 10.8 per cent, from 14.2 per cent this year.
This "moderate growth" would bring the total imports to 410 million tonnes, while domestic output would rise by a similar amount, to 885 million tonnes.
Steel exports, he said, would remain the same or even decline -- recognising China's desire to remove "backward" production facilities, to improve the environment.
Xiong Bilin, deputy director for industry at the National Development and Reform Commission, said the Government did not want China to become "the steel supplier of the world".
But the international steel price remained higher than in China, he pointed out -- luring its mills into the export market.
Mr Luo described the freight cost hike as "abnormal and temporary". Chiefly as a result, steel production costs have risen by a "remarkable" 11 per cent so far this year, he said, while the growth rate in steel production had been declining.
He said: "We believe the current shipping price will fall back to normal levels, with effort from both sides."
In the first nine months of 2007, China imported 108.6 million tonnes of ore from Australia, up 14.8 per cent on the same period last year, 72.2 million tonnes from Brazil, up 28 per cent, and 60.9 million tonnes from India, up 4.3 per cent.
Recent projections of ore price rises for next year range between Reuter's consensus forecast of 25 per cent, which JP Morgan also projects, to Morgan Stanley and Merrill Lynch of 50 per cent.
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