Iron ore price rise could force China steel rationalization
Updated: 2008-02-26 18:38
Australian mining companies were pushing for a change in the pricing system, which impelled Japanese and ROK steel producers to conclude the negotiations. Australia's Rio Tinto and BHP Billiton have sought a new benchmark pricing system that would be more "flexible," featuring prices that would be set quarterly or monthly.
The Japanese and ROK steel makers were eager to avoid such a change, which would mean more volatility and most likely higher prices for ore. They settled quickly, leaving China to accept the outcome.
Higher prices to have varied impact
The China Securities Journal reported on Monday that 57 domestic steel mills had raised their prices after the benchmark price was settled. And on Tuesday, the newspaper reported that Baosteel had raised steel prices for the second quarter of 2008. Its prices for major cold- and hot-rolled products will rise 800 yuan (111 U.S. dollars) per ton in the second quarter, compared with the first quarter, Tuesday's China Securities Journal quoted an announcement by Baosteel as saying.
Considering that Baosteel has a heavier reliance on imported iron ore than other domestic competitors, a 65-percent iron ore price rise could translate into cost mark-up of 258 yuan for Baosteel, as against 116 yuan for other domestic steel makers, according to statistics from Chemease, a business information provider on Chinese chemical commodity markets.
But a price hike of up to 800 yuan would offset its cost mark-up and also provide ample profit margins, said Chemease analysts.
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