Chinese steelmakers downplay Vale's move to lower iron ore prices
Vale (Companhia Vale do Rio Doce) plans to lower their iron ore price from 150 U.S. dollars per ton to 130 U.S. dollars per ton in light of the recent drop in iron ore prices in China, according to a report by Daily Economic News on Aug. 31. If the prices are lowered as planned, this will be the first-ever price reduction since the long-term iron ore pricing mechanism was eliminated.
Industry insiders said this is just a slight dip in the long-term upward trend for iron ore prices. Domestic steelmakers will still face the long-run difficulties of high production capacity, high inventory and high cost. Some of them will possibly turn losses.
A spokesperson for Vale said in an interview that this decision was made as a result of the decline in China's iron ore demand and is one of the company's moves in terms of seasonal price adjustments.
Chen Jiang, executive director of Alliance PKU Management Consultants, Ltd., said on Aug. 30 that driven by China's huge demand for raw materials, the global three giant iron ore suppliers had unanimously raised prices, but they are still in competition with each other.
"The other two key suppliers will respond to Vale's intention to lower the iron ore price," he added.
However, even the reduced price is nearly 120 percent higher than last year's iron ore price. Previously, the quarterly iron ore prices offered by mining companies all rose, and Vale's intention to cut prices has inevitably invited suspicion.
An employee of a large steel company in Shandong said that the company is still faced with a tough situation.
"On one hand, a few large mining companies hold the monopoly of iron ore. On the other hand, steel consumers still maintain a high-volume inventory. Although October is normally a peak season for the consumption of steel products, the consumers' steel inventory has hit a record high. Overall, we cannot expect too much of the downstream industries," the employee said.
Baoshan Iron and Steel Company, whose interim net profit grew over 11-fold from a year earlier, recently said in its semi-annual report that China's steel industry will continue to face an unfavorable situation in the second half of 2010.
As a result of the reduction in steel exports caused by adjustments to the export tax rebate policy as well as the decline in domestic demand, the domestic steel price may hit a record low. Meanwhile, prices of iron ore and other main raw materials remain high, so the total second-half revenue of Chinese steel companies is predicted to fall from the first half of this year.
The prediction has been echoed by many listed steel companies, such as the Jinan Iron and Steel Company, Wuhan Iron and Steel Company, Hebei Iron and Steel Company and Shanxi Taigang Stainless Steel Company.
