Replies to post #725 on The Rising Influence of Rising Affluence

[DewDiligence]

More on the same topic…
China Steelmakers Vow to Control Iron Ore Trading

http://finance.yahoo.com/news/China-steelmakers-meet-mull-apf-4179497429.html?x=0&.v=4

›By Elaine Kurtenbach
Friday April 2, 2010, 6:45 am EDT

SHANGHAI (AP) -- A state-affiliated industry group vowed Friday to tighten control over iron ore trading as Chinese steelmakers discussed strategy for contentious price talks with global miners -- the backdrop to last month's commercial spying and bribery convictions of four Rio Tinto employees.

The China Iron & Steel Association gathered representatives of major mills at a meeting Friday and affirmed its determination to control the iron ore trade, according to Xu Xiangchun, chief analyst at mysteel.com, a Web site that follows the industry. The meeting also was reported by Chinese media.

Beijing has been trying through CISA to use China's status as the world's biggest steel producer to force global iron ore suppliers to cut prices at a time of intense demand. It pressed in vain last year for a deeper price cut than those agreed to with Japanese and Korean mills.

Three major miners, Vale, BHP Billiton Ltd. and Rio Tinto control about two-thirds of global iron ore trading. They have reached agreements with some major mills, primarily in Asia, to set prices on a quarterly basis instead of annually, which will give them more pricing flexibility.

On Thursday, Brazil's Vale, the world's largest iron ore miner, announced it has reached new agreements with most of its clients "based on short-term market references and price changes” on a quarterly basis [#msg-48543418].

Chinese and European steelmakers oppose the shift [duh], which so far reportedly has led to price increases of 80 percent to 100 percent. China has fought to retain annual arrangements, hoping that would give it more leverage over prices.

CISA declined comment on the issue Friday.

A Chinese court sentenced four Rio employees to prison last month on charges of commercial spying and taking bribes. Industry analysts have suggested the investigation that led to their arrest might have begun as part of government efforts to tighten control over China's sprawling steel industry and the release of sales and production data that might help foreign miners in price talks.

China's iron ore imports soared nearly 42 percent in 2009 from a year earlier to 630 million tons. Analysts say traders were building up stockpiles in anticipation of the collapse of annual contracts and sharply higher prices this year.

The government has protested that soaring costs are hurting steel mill profits and is seeking to prevent traders from pushing prices still higher as mills compete for limited iron ore supplies.

The chairman of one of China's leading steel mills, Shanghai-based Baosteel Group, resigned this week from its publicly traded unit, Baoshan Iron & Steel. Baosteel represented China's steel industry in price talks in previous years but it was unclear whether Xu Lejiang's resignation was linked to the talks.

Xu's successor as chairman, He Wenbo, told shareholders at Baosteel's annual meeting Thursday that the talks were "very tough."

"The long-term contract will be more helpful to reach the win-to-win for both steel industry and the miner. I hope the miners will think of their long-term interests," He said, according to Tao Yun, an official of Baosteel's investor relations department.

Chinese steelmakers have also stepped up efforts to find new iron ore sources and boost domestic production. China's biggest domestic iron ore miner, a subsidiary of steelmaker Angang Group, plans to spend 14.7 billion yuan ($2.2 billion) to double its annual output in the next decade, the official Xinhua News Agency reported. It said the miner now produces 45 million tons of ore a year.

European steelmakers have reacted angrily to the new pricing system and are pushing for a European Union antitrust probe of the three major suppliers. European automakers and engineering companies also say higher iron ore costs could harm their businesses.‹

[DewDiligence]

Norsk Hydro Acquires Vale’s Aluminum Assets for $4.9B

[VALE is the world’s largest producer of iron ore, but it has had little commercial success with other minerals such as nickel and aluminum. See the annotations below vis-à-vis the rationale for this deal.]

http://online.wsj.com/article/SB10001424052748704608104575220193467056322.html

›MAY 3, 2010
By MARK NAJARIAN

Norway's Norsk Hydro ASA struck a $4.9 billion deal Sunday to take over mining company Vale SA's aluminum operations in Brazil, a move the aluminum producer said secures enough raw material to run its operations for decades.

The deal gives Norsk Hydro, whose main business is running aluminum smelters and producing aluminum products, control of the world's third largest bauxite mine and the world's biggest alumina refinery.

Vale, the world's largest iron ore miner, will receive $1.1 billion in cash and a 22% stake in Norsk Hydro for its assets. Norsk Hydro said it plans to finance the transaction with a rights issue that will raise about $1.75 billion, and assume about $700 million in debt.

Norsk Hydro said the transaction and the rights offering have the backing of the Norwegian government, which is the company's biggest shareholder. Under the deal, the government's stake in Norsk Hydro will be reduced to about 35% from 44%.

The Norwegian company will get 60% control of Paragominas, a large bauxite mine in northern Brazil. Bauxite ore is refined into a white powder called alumina, which in turn makes the aluminum used in the world's cars and planes. Norsk Hydro also has the right to take over the remaining 40% stake in two installments, in 2013 and 2015, for $200 million each.

Norsk Hydro is also buying a 91% ownership in the world's largest alumina refinery, Alunorte; 51% of the Albras aluminum plant; and 81% of the CAP alumina refinery project. All the assets are located in Brazil.

The transaction gives Norsk Hydro direct control over its supply of raw materials. It will "significantly improve our competitive position, making us more financially robust and well-positioned for growth," said Norsk Hydro Chief Executive Svein Richard Brandtzaeg.

Around 3,600 Vale employees will be transferred to Norsk Hydro, which employs around 19,000 people in 40 countries. The move is a significant expansion into Brazil for Norsk Hydro, which has largely used joint ventures with Vale and has about 400 workers in the country.

Vale said it was selling the assets because its presence in the "primary aluminum metal industry is small, and has no growth potential due to the lack of access to low-cost sources of power generation" in Brazil. [Aluminum processing does use prodigious amounts of electricity, but Norsk Hydro will face the same power requirements as Vale, and hence I don’t think a lack of cheap power is really the impetus for this transaction. Rather, Vale simply wants to leverage its industry-leading position in iron, and this asset sale is a way to finance continued investments in iron such as the one in the next paragraph.]

The deal comes days after Vale said it would pay $2.5 billion for a majority stake in an iron-ore miner in Guinea, BSG Resources.

The Paragominas mine has a current annual capacity of 9.9 million tons. A planed expansion will increase the mine's capacity to 15 million tons, Norsk Hydro said.

According to the agreement, Vale can't increase its ownership in Norsk Hydro above 22% and will hold its shares for at least two years after the transaction closes. Following the two-year period, Vale won't sell shares representing more than 10% of Norsk Hydro's issued shares to any single buyer or group.

The Government Pension Fund Norway, which owns 5.9% of the issued shares, also supports the issue, Norsk Hydro said. The company said the closing of the transaction with Vale is expected in the fourth quarter.‹

[DewDiligence]

Iron Miners Forecast 4Q10 Bounce in Spot Price

http://www.reuters.com/article/idAFN208989020100720

›RIO DE JANEIRO, July 20 (Reuters) – Spot prices for iron ore will rise in the fourth quarter after a decline in the past months, officials from Brazilian mining companies Vale and MMX said on Tuesday.

"Spot prices fell in the third quarter, which we consider seasonal. Our expectation is that they will increase again in the fourth quarter," said Claudio Alves, director for iron sales in the Americas for Vale (VALE) -- the world's largest iron ore producer.

Spot iron prices have fallen to around $117 per tonne after reaching highs above $180 per tonne due to a range of factors including slowing Chinese demand and a general softening of commodities markets of late.

"Demand is currently strong in the market. We have requests for additional contracts every day," said Roger Downey, president of iron mining firm MMX (MMXM3.SA), which also predicted prices would rebound.

Both were speaking at the CRU Latin American Iron & Steel Trends conference in Rio de Janeiro.

Iron markets are operating under a new quarterly pricing system that replaced the decades-old annual benchmark system [#msg-48543418]. Prices under the quarterly system are based on spot prices from the previous quarter.

Miners could move to monthly pricing due to increased volatility in iron prices, an industry analyst said on Tuesday. [I seriously doubt that, but what do I know?]‹

[DewDiligence]

China Has No Say in Iron-Ore Pricing

[This story should be old hat for readers of this board.]

http://www.reuters.com/article/2011/03/05/china-npc-wuhansteel-idUSTOE72301U20110305

›Sat Mar 5, 2011 9:08am EST

BEIJING, March 5 (Reuters) - China continues to have no say in setting global iron ore prices despite being the world's biggest consumer of the key steelmaking ingredient, Wuhan Iron and Steel president Deng Qilin said on Saturday.

Deng told a news conference on the sidelines of the National People's Congress in Beijing major global iron ore suppliers -- Rio Tinto (RIO.AX), BHP Billiton (BHP, BBL) and Vale (VALE) - were now capable of setting prices arbitrarily [no kidding].

"Last year, the value of iron ore sold by Rio Tinto was the equivalent of the entire industrial value of the Chinese steel sector," he said.

"The cost of extracting 1 tonne of iron ore is $20, delivery costs are $56 and it is selling for $180-$190 -- this is a monopoly in the true sense of the word." [Actually, it’s an oligopoly. The speaker would seem to need a course in basic economics :- )]

Deng also complained that the big miners were now trying to force spot pricing on their Chinese customers after abandoning a decades-old annual "benchmark" pricing system in favour of a more flexible quarterly system last year.

"They are also preparing to set up a base in Chinese ports to sell to you on a spot market basis. This assault on the Chinese steel industry is too big, the costs are too high and we can't bear them."

He was referring to a plan by Brazilian miner Vale to set up an export processing facility on the east coast of China, its biggest customer.

Deng added that the problems were compounded by domestic structural problems, with steel supply far outweighing demand.

Wuhan Iron and Steel, also known as Wugang, is China's third-largest steel mill by capacity, behind Hebei Iron and Steel and Shanghai's Baoshan Iron and Steel.

Deng, also the outgoing chairman of the China Iron and Steel Association, told Xinhua news agency earlier this week his firm aims to raise its total steel capacity to 60 million tonnes by the end of 2015.

He said the target would be met through the acquisition and expansion of several large mills as well as the relocation and renovation of some of its facilities.

China is pushing its top steel firms to lead consolidation in the sector, with an overall target to put 60 percent of total capacity in the hands of its leading 10 mills by 2015, from around 48 percent now.

China is also encouraging big enterprises to gain more control over foreign iron ore, and aims to bring the share of China-invested overseas supplies to 50 percent of the country's total imports by 2015.

Deng told Xinhua that Wugang was well on the way to meeting its own iron ore supply targets, and that the total export capacity of mines invested by the company amounted to "several hundred million tonnes".

Wuhan Steel recently signed an $800 million deal with Australia's Riversdale (RIV.AX) to buy a 40-percent stake at its Zambeze coal project in Mozambique.

It is also looking to form a joint venture to develop mining projects with Canada's Century Iron Mines Corp and Adriana Resources Inc (ADI.V).‹