09Iron ore price negotiation: Baosteel recommends adjusting contract quantity and price every six months

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Reporters learned yesterday from the China Iron and Steel Industry Association that Baosteel has proposed to its three major suppliers to "adjust the contract volume and contract price every six months to avoid operating risks on both sides of the supply and demand sides." Industry insiders pointed out that exchange rate changes outside the industrial chain may become the biggest determinant of iron ore prices. The production bases of the two major suppliers, BHP Billiton and Rio Tinto, are both in Australia. The exchange rate of the Australian dollar against the US dollar has been declining since it reached its highest point of 0.984 on July 15, 2008. It has been hovering around 0.65 since February 2009, returning to the level of six years ago. Shan Shanghua, secretary-general of the China Iron and Steel Association, said that China requires iron ore prices to return to 2007 levels, which means an average drop of about 40%. However, another major supplier, Vale of Brazil, only agreed to reduce prices by 10%, while BHP Billiton and Rio Tinto have not yet made a clear stance. Analyst Hu Kai pointed out that taking into account the depreciation of the Australian dollar, if the long-term contract price of Australian iron ore fell by less than 30% in 2009, the price of iron ore would even rise compared to 2008 when converted into Australian dollars. Hu Kai calculated that the FOB price of Australian iron ore contracts in 2008 was 89 US dollars/ton. After converting to Australian dollars at the then exchange rate of 0.95, it was 93 Australian dollars/ton. For example, in 2009, the Australian mining contract price fell by 30% to 62 US dollars/ton. At the current exchange rate of 0.65, it was 96 Australian dollars/ton, which was 3% higher than in 2008. Brazilian mining companies have the same problem. The Brazilian currency, the real, remained above 0.6 against the dollar for most of 2008, and has remained around 0.4 after a sharp decline in September-October 2008, a decline of 33% during that period. In 2008, the FOB Brazilian iron ore contract price was 77 US dollars/ton. After converting it into reals at the then exchange rate of 0.6, it was 128 reals/ton. If the Brazilian mine contract price fell by 30% this year, it would be 54 US dollars/ton. At the current exchange rate of 0.4, it would be 135 reals/ton, which is a 5% increase from 2008. The reporter found that in BHP Billiton's latest half-year financial report, exchange income alone increased by US$1.5 billion, which shows that mining companies are fully capable of accepting China's price reduction requirements. Industry analyst Wang Tieshan even believes that iron ore prices should drop by 70% to be equivalent to the price level in fiscal 2007. This price is acceptable to Australia and Brazil. Hu Kai believes that the iron ore negotiations in 2009 may be the result of an "overt drop and a hidden rise", that is, the contract price will fall by about 30%. Due to the stable exchange rate of the RMB against the US dollar, and the sharp depreciation of the currencies of Brazil and Australia against the US dollar, mining companies will also benefit. Zeng Jiesheng, an analyst at the Research Center, believes that Rio Tinto, which was the toughest in negotiations last year, is no longer in good shape this time due to its debt issues and negotiations with Chinalco for capital injections. ； China's excessive imports of minerals in 2008 will need to be digested this year, and the overall import volume will decline. At the same time, domestic mines will compete with overseas suppliers, squeezing their market share. Only when steel companies determine production based on demand and control output rationally can iron ore prices return rationally. This post was last edited by laomao123 on 2009-2-13 14:09 ]