Chinese steel makers reject Rio Tinto price
June 2, 2009
China's steel industry group has rejected iron ore prices negotiated by Australian producer Rio Tinto with Japanese and South Korean mills, setting up a possible clash with suppliers.
The weekend announcement by the China Iron and Steel Association breaks with an industry tradition of treating the first agreement in annual talks on ore prices as the benchmark for other Asian customers.
Rio Tinto, the world's third-largest mining house, agreed with Japan's Nippon Steel last week to cut iron ore prices by about a third.
But the Chinese group, whose 119 members represent 90 percent of output in China, the biggest steel producer, said on Sunday that the Rio Tinto-Nippon Steel agreement failed to reflect market conditions and would "result in overall losses among China's steel makers".
The group did not say what price it wanted, but industry analysts said earlier that the Chinese buyers wanted a 40 percent cut for the buying year that begins on June 30.
The Chinese industry group has taken the lead in price negotiations this year, replacing Baoshan Iron & Steel, China's biggest mill. Other major ore suppliers are Brazil's Vale and Anglo-Australian mining house BHP Billiton.
Despite China's clout as a major buyer, its hardline stance was unlikely to produce a big price cut, said Linda Lin, an analyst in Shanghai for Metal Bulletin, an industry information provider. She said economic recovery would drive demand for steel and producers might press their negotiator to reach a deal quickly.
"Suppliers certainly don't want to lose China's big market, and it's also impossible for China to get other stable suppliers with high-quality products," said Lin. "A failure of the negotiations also certainly is not something the Chinese side would like to see."
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