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Bad year ahead for iron ore producers

By Wang Lan (China Daily)
Updated: 2008-10-21 14:55

The iron ore price negotiation for 2009 next month is likely to turn the tables against producers for the first time in several years because of fears of a US-led global recession.

Industry experts and analysts said yesterday that major consuming countries, including China, will have a bigger say in what is expected to be a buyers' market dominated by high inventories and falling demand.

"The persistent drop in prices of a variety of steel products has forced many domestic (Chinese) steel manufacturers to cut production to reduce losses," said Zhang Ping, senior steel industry specialist with Umetals, a leading metal consultancy firm.

Industry analysts said the continuous drop in steel product prices and the high cost of raw material inventories have reduced steel manufacturers' earnings and further dented demand for iron ore. The resulting mismatch of iron ore supply and demand will help increase consumers' bargaining power during the 2009 price negotiations.

Ma Keming, an analyst with Huatai Securities Co, said: "The question is not whether the contract price will be lowered, but how much it will drop," considering the expansive price gap between the spot and contract prices.

The existing long-term contract CIF price of iron ore is even higher than the spot price of imported Indian iron ore, which is usually taken as reference in setting next year's benchmark iron ore contract price between consumers and three giant suppliers, Brazil's CVRD, Australia's BHP and Rio Tinto.