Vale Should Reconsider Iron Ore Pricing as Demand Weakens, Baosteel Says

Baosteel Group Corp., China’s second-largest steelmaker, said iron ore producers should reconsider how they price the raw material as prices slide.

The steelmaker is in talks with mining companies and hopes to achieve a “win-win” conclusion, Chairman Xu Lejiang told reporters today in Beijing. Imports by China, the biggest buyer, may equal last year’s level at best and may fall, he said.

Chinese iron ore purchases dropped for a third straight month in June as steel demand weakened from automakers and builders. Vale SA, BHP Billiton Ltd. and Rio Tinto Group, the biggest exporters of the commodity, this year abandoned a 40- year custom of annual contracts in favor of quarterly agreements as they bet on rising prices.

“The supply and demand for iron ore has changed as prices fall,” Xu said. “This must prompt the suppliers to rethink ore pricing. We hope to reach a pricing system that’s sustainable over the long term.”

The cost of 62 percent iron ore delivered to Tianjin port dropped for a 16th straight day to $117.60 a ton on July 13. That’s down 37 percent from the April 21 price of $186.50, the highest since data from the Steel Index was compiled on Bloomberg from November 2008.

Slowing Demand

China will cut annual imports for the first time since 1998 because of slowing demand, according to Xu Xiangchun, chief analyst of Mysteel Research Institute. The imports dropped 9 percent to 47.2 million metric tons from a month ago.

Jiangsu Shagang Group Co., China’s fourth-biggest steelmaker, and Nanjing Iron & Steel Co. said they have put off iron ore purchases after prices dropped.

Steel demand from carmakers will slow in the second half from the first six months, Baosteel’s Xu said, signaling a decline in the world’s biggest metal market will continue.

Growth in auto production may be as low as 15 percent this year, he said. Sales of cars, buses and trucks in China gained 48 percent in the first half of the year.

Crude steel production in China fell to a four-month low in June, according to data from the National Bureau of Statistics today. Prices are likely to drop 10 percent for the rest of the year because of high inventory and poor demand, JPMorgan Chase & Co. said in a July 12 note.

Baosteel is in talks with PT Aneka Tambang, an Indonesian nickel producer, to build a ferronickel plant in the country, Xu said, without providing the possible investment value.

Dow Jones reported July 13 that the two partners will sign a $1.2 billion agreement this month for the project.

--Xiao Yu, Helen Yuan. Editors: Tan Hweee Ann, Indranil Ghosh.

To contact the Bloomberg News staff on this story: Xiao Yu in Beijing at yxiao@bloomberg.net; Helen Yuan in Shanghai at hyuan@bloomberg.net

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