February 23rd, 2008 | Xinhua Baosteel, Vale agree on 2008 iron ore benchmark price
Baosteel, China’s largest iron and steel maker, said on Friday it has agreed with Brazilian iron ore supplier Vale on a 65 percent price rise in 2008. The price is equivalent with that agreed between Vale and other Asian steel makers, including Japan’s Nippon Steel and JFE Steel, and POSCO of Republic of Korea (ROK).
Company sources disclosed negotiations between Baosteel and Australian iron ore providers were still underway. The newly-agreed price, which is for long-term supply, is generally acceptable considering its good quality, said Jia Liangqun, analyst with Mysteel, an industry information website. Baosteel has been negotiating on behalf of China’s steel industry since December with major global iron ore providers, including BHP Billiton, Rio Tinto and CVRD. To offset skyrocketing iron ore costs, the company has teamed with China Shipping(Group) Company to set up a joint venture to provide fixed-price shipping for iron ore imports. “It will help Baosteel to control costs and help China Shipping to increase market share,” Li Shaode, China Shipping president, said on Thursday. The joint venture will provide Baosteel with two 300,000 ton bulk cargo ships and four 230,000 ton bulk ships. The vessel scale will double by the end of 2015 to reach 3 million tons in capacity.
Freight costs have soared dramatically along with iron ore prices. Iron ore freight from Brazil to China peaked at 90 U.S.dollars or above, doubling the long-term contracted prices, Baosteel Board Chairman Xu Lejiang noted. Insiders believed cost controls have been a lifeline for steel producers at present. The runaway iron ore prices have pushed steel prices up significantly. Prices of major types of steel increased by 400 yuan to 500 yuan in China from Feb. 13 to Feb. 21.
China, the world’s largest steel producer and consumer, imported 383 million tons of iron ore in 2007, up 56.8 million tons or 17.4 percent year on year, according to the China Iron and Steel Association. After a period of explosive price surges, iron ore costs were expected to stabilize with less demand for steel as analyst believed. China’s daily steel output has shown signs of shrinking since the end of last year, plagued by a limited iron ore supply and soaring costs. Baosteel Deputy Manager Dai Zhihao said Chinese enterprises should beef up restructuring and industry upgrading to shrug off the passive status in the iron ore price negotiation.