Metal & MIning Iron Ore Giants, China Square Off Over Pricing
An obscure phenomenon in the business world — the pricing of iron ore — is quickly escalating into a high stakes melodrama that some believe could end up benefiting smaller iron mining companies. The three companies that dominate global production — Brazil's Vale SA, and the Anglo-Australian companies Rio Tinto Group and BHP Billiton Ltd. — are going head to head with China, which last year imported close to 630 million tons of iron ore, making it the world's leading customer. The two sides are squaring off over the annual setting of the benchmark contract prices for the fiscal year that begins in April.
China and Japan have been chafing at the ability of the big three producers to command a strong position in negotiations even during last year's recession because of their overwhelming market share. And it's widely reported that the big three producers this year plan first to reach a deal with Japan and then present those terms to China as a done deal. The same economic stimulus spending that has powered China's rise to become the world's leading exporter in December 2009 has also increased steel demand from the country's 72 major steelmakers and hundreds of smaller operations and resulted in "very strong" requirements for iron ore, said Patricia Mohr, vice-president for economics with Scotia Capital in Toronto. Since the spring of 2009, import volumes of iron ore into China from major suppliers in places like Australia and Brazil have moved to record highs. Cash prices have risen sharply as Chinese traders build up stocks before a new contract price is negotiated. The China Daily newspaper has reported iron ore prices soaring to about $150 US per ton, more than double April 2009's low. Mohr said it's hard to say how long it will take to conclude negotiations.
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