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A global iron ore oversupply, lower spot prices, and huge stockpiles in China’s domestic iron ore market will improve the odds of Chinese steel mills in securing more cuts in its iron ore price negotiation with overseas suppliers, Du Wei, an Umetal analyst told Xinhua Thursday.

China Iron and Steel Association (CISA) refused on May 31 to accept the iron ore price cut between 33 percent and 44 percent reached between Rio Tinto and Japan’s Nippon Steel Corp, and insisted on a price cut of more than 40 percent in the annual contracts of iron ore.

Analysts and insiders believe an estimated global excessive supply and a considerable decline in demand impose great pressure on the miners amid the economic downturn.

“The global iron ore supply surplus is estimated to be between 200 million and 300 million tonnes,” said Luo Bingsheng, vice chairman of the CISA in Shanghai Tuesday.

Total iron ore demand is expected to drop between 150 million and 200 million tonnes this year, according to Xu Xiangchun, chief information officer of Mysteel.com Wednesday.

Luo also said China’s steel maker would turn to the spot pricing, abandoning the benchmark price system, if the suppliers deny its 40 percent to 50 percent price cut request.

“Despite a 33 percent price cut, the long contract price is still 8 to 9 U.S. dollars higher than the spot price,” said Du Wei.

Huge stockpiles should prompt China’s steel makers to call for a bigger cuts in iron ore prices in the progressing negotiation, Du said.

The latest data from the www.umetal.com shows that iron ore stocks at Chinese main ports exceeded 70 million tonnes as of May 31.

Du estimated that China’s overall stocks had surpassed 110 million tonnes in consideration of 30 million tons of stocks by steel plants.

However, analysts and insiders believe the negotiation will drag on beyond the end of June.

According to Luo, China’s steel mills lost 5 billion yuan (732 million U.S. dollars) in the first four months this year.

If the CISA compromises, the long contract price would be set at a high level during the peak season, and China’s steel plants would suffer more in profit loss resulting from high costs, said Du.

“We have not set a deadline of when the negotiation would end. Even if the two sides had not reached the deal by the end of June, it would not affect the production of China’s steel plants,” said Shan Shanghua Wednesday.

(Xinhua News Agency June 5, 2009)

Aluminum Corp of China’s proposed US$19.5 billion investment in Anglo-Australian mining giant Rio Tinto appeared to be heading toward failure last night as the miner turns to other options for fund raising.

A statement explaining the breakup will be issued early today, said a spokesman for the Chinese company, also called Chinalco. Rio’s board gathered in London overnight for a meeting on the issue and discussion of a US$195 million breakup fee.

Western media speculated late yesterday that Rio was exiting the deal – the biggest in corporate history in both China and Australia – sending Rio’s London-listed shares tumbling as much as 10 percent in afternoon trading.

The Australian press said Rio will be able to raise up to US$15 billion through a rights issue as conditions have improved in the debt and equity markets since February, when the Chinalco-Rio deal was announced. And one Australian newspaper speculated that Rio may instead pursue a deal with former takeover suitor BHP Billiton, also its rival. Rio rejected a hostile offer from BHP in November.

Rio didn’t deny the speculation, saying late yesterday that it “is pursuing a range of options, some of which are at an advanced stage, for maximizing shareholder value and improving the group’s capital structure.”

The deal has been viewed as a major step in the efforts of Chinese companies to acquire overseas resources, taking advantage of a slump in commodity prices.

It was also expected to benefit China’s steel industry. China is the top buyer of iron ore and Rio the world’s second-largest supplier.

Rio last month agreed with other Asian mills on a 33 percent reduction in this year’s term prices for iron ore while China insisted on deeper cuts as talks dragged on.

Chinalco Chairman Xiong Weiping was expected to fly back to Beijing today after making a brief visit to Canberra, capital of Australia, where he talked to government officials about the deal.

(Shanghai Daily June 5, 2009)

China’s steel industry had a new plan for talks with overseas suppliers on iron ore prices, a senior industry official was reported as saying, but insiders were split on the possible outcome of the ongoing negotiations.

Luo Bingsheng, vice-chairman of the China Iron and Steel Association (CISA), was quoted by Shanghai Securities News as saying that the association had a new plan for discussions with BHP Billiton, Rio Tinto, and Brazil’s Vale and expected the talks to conclude by the end of this month. But he declined to elaborate.

Japanese and South Korean steel mills and Rio Tinto last week agreed on a price cut of 33 percent for iron ore fines and 44 percent for lump iron. But CISA is aiming to take iron ore prices at least back to 2007 levels, which would imply cuts of 40 percent or more.

Luo said iron ore supply is largely surpassing demand in the international market this year – imports by Japan and South Korea are decreasing remarkably and China is the only country showing a strong demand.

Zhang Zhipeng, an analyst with AJ Securities, said Chinese mills did not have a big say in the negotiations because the market was still controlled by suppliers. He said Chinese buyers should aggressively try to diversify their supplies.

Some experts argued that China was under no pressure since the country was seeing a great surplus in iron ore imports. China’s iron ore imports in the first four months exceeded actual demand by 27 million tons.

Luo also estimated that the global iron ore surplus might range between 200 million and 300 million tons this year.

Xu Xiangchun, chief information officer of Mysteel.com, said it was possible that the negotiation would drag on beyond the end of June, when last year’s contract was scheduled to end.

“CISA’s strong attitude is within expectations since it has insisted on larger cuts in the annual prices,” he said. “But it is still hard to tell whether it can reach a ‘China price’ or will have to compromise finally.”

(China Daily June 4, 2009)

China’s steel companies refuse to accept the iron ore price cut reached between Rio Tinto and Japan’s Nippon Steel Corp., the China Iron and Steel Association (CISA) said Sunday.

The price cut failed to reflect the real supply and demand situation on the international market and would lead to overall losses for Chinese steel companies, the CISA said in a statement on its website.

Anglo-Australian iron ore giant Rio Tinto on Tuesday announced it had agreed a price cut of between 33 percent and 44 percent with the Nippon Steel.

“This does not represent the mutually-beneficial relationship between steel producers and iron ore suppliers,” said the CISA statement. “Chinese steel companies will not accept or follow the price cut.”

The CISA has insisted that the iron ore price should fall back to 2007 levels, which meant a price cut of more than 40 percent in the annual contracts of iron ore.

CISA officials were not available for comment Sunday.

(Xinhua News Agency June 1, 2009)

Bitten by the gold bug, Chinese investors are now rushing to hoard the yellow metal as fears over the global recession deepen.

The increased sales of gold bars and gold jewelry in Shanghai, Beijing, Guangzhou and other large cities are reflected in the precious metal’s price surge on the Shanghai Gold Exchange (SGE), which trades in gold contracts for forward deliveries. Gold prices quoted on the SGE have increased by an average 6.74 percent in the past month to the current level of about 209 yuan a gram.

“Gold demand in China in the first quarter rose to 114 tons, up 2 percent over the same period last year, solely boosted by an increase in jewelry demand,” according to the latest Gold Demand Trends report for the first quarter of 2009 published by the World Gold Council.

The report said global demand for gold rose 38 percent year-on-year to 1,016 tons, representing a 36 percent rise in value. China is the world’s second largest gold consuming country after India.

Inspired by the increase in the government gold reserves, the more savvy investors are also buying shares of Chinese gold producers on the Shanghai Stock Exchange and the smaller Shenzhen Stock Exchange.

In late April, Hu Xiaolian, the head of China’s foreign exchange agency, said China’s gold reserves had risen 75.67 percent to 1,054 tons since 2003. Analysts said they expect the Chinese government would continue to raise its gold holdings as the renminbi becomes increasingly internationalized.

“China’s gold reserves may serve as backing for the yuan as Beijing is stepping up the promotion of its use overseas,” said Albert Cheng, director of the World Gold Council’s Far East Division.

“As we know, in late April, the People’s Bank of China announced its gold reserves had risen 454 tons since 2003 to 1,054 tons, a signal that the central bank is taking gold as a reliable hedge against financial uncertainties,” said Cheng.

According to Cheng, China now plays a greater role in the global gold market. Based on its increased holdings, China is fifth-largest gold reserve nation after the United States, Germany, France and Italy. In addition, China is also the world’s largest gold producer and the second-largest gold jewelry consumer next to India.

“China’s demand for gold bullion reached 68.9 tons in 2008, up 176 percent from 25 tons in 2007,” said Cheng.

Cheng said gold differs greatly from other investments. “You cannot make a fortune overnight from gold trading, but you won’t lose your shirt instantly in gold trading, either,” he said. For personal investors, Cheng’s advice is: it is never too late to enter the gold market, because gold purchases pay off in the long run.

Gold-related shares on the Chinese bourses have also rallied in recent days. Zhongjin Gold Co surged by 9.29 percent to 76.73 yuan on Wednesday, while Shandong Gold Mining edged up by 5.55 percent to close at 44.5 yuan.

“The declining value of the dollar along with the worsening economic outlook is forcing investors to seek other anti-inflationary investment tools, like gold,” said Xiao Zheng, analyst, Ping An Securities.

Immediate-delivery gold prices reached a three-month high on May 22 in New York at $959.75 per ounce, the highest since Feb 26, a reflection of growing fears on worsening global economic outlook and devaluation of the greenback, analysts said.

The precious metal has moved up by 19.73 percent from this year’s low of $801.59 an ounce on January 15. Gold prices on the Shanghai Gold Exchange (SGE) also saw a monthly growth of 6.74 percent, from 195.42 yuan on April 22 to 209.05 yuan on Monday.

The global economic indicators have also not exactly been rosy. The latest figures released by the US Commerce Department showed a further sign of economic decline. Buildings permits fell 3.3 percent to a record low of 494,000. The Dollar Index, a measure of the greenback against Euro, Japanese yen, British pound, Canadian dollars, Swiss franc and Swedish krone, lost 3.4 percent this week on speculation that the US government’s creditworthiness may be weakening.

“Key indices are pointing to a downside trend. Investors prefer to stock value-retaining gold,” said Xiao. He added that gold outperforms other non-ferrous metals.

Huang Hao, analyst, Sealand Securities, said the recovering demand from India, the world’s largest gold consumer in May is also an important reason for the recent gold price hike.

(China Daily May 29, 2009)

Nanjing Iron and Steel Co yesterday said it will acquire assets worth 8.6 billion yuan (US$1.26 billion) in exchange for giving new shares to a related company, paving the way for a group listing.

Nanjing Steel will issue 2.03 billion shares at 4.23 yuan apiece to Nanjing Nangang United Co in exchange for assets in steel making, iron ore mining and transport, it said in a statement to the Shanghai Stock Exchange yesterday.

The purchases would raise Nanjing Steel’s annual crude steel capacity to 6.5 million tons, the company said. The expansion will represent a 20 percent rise in capacity, according to Guosen Securities analyst Zheng Dong.

“The asset injection could increase the company’s profitability in the future, although the steel market remains weak amid the global economic crisis,” Zheng wrote.

Chinese steel makers, including industry leaders such as Baoshan Iron and Steel Co and Angang Steel Co, are acquiring assets from parent companies as the government encourages consolidation in the sector.

The deal will help reduce connected transactions and increase its capacity to cope with risks, according to Nanjing Steel.

Nanjing Steel, based in Jiangsu Province, is controlled by billionaire Guo Guangchang, chairman of Shanghai-based and Hong Kong-listed Fosun International Ltd, one of China’s largest privately owned conglomerates.

Nanjing Steel fell 1.51 percent to 4.58 yuan yesterday after the announcement. The Shanghai Composite Index shed 0.82 percent.

(Shanghai Daily May 27, 2009)

The price agreement inked between Rio Tinto Group and Nippon Steel Corp will put China in a difficult position at this year’s iron ore negotiations, according to analysts.

Ding Bo, an employee with Baosteel, the barometer of China’s steel industry, said this would leave uncertainties for China’s negotiation price. “According to the practice over the years, once the price was set, we had no choice but to follow it,” he said. But this year, as China Iron

Chinese steel industry officials yesterday said they will insist on a deeper price cut for iron ore after Rio Tinto agreed to a 33 percent reduction in annual contract prices with Japanese mills.

But analysts said it may be difficult for China to win larger discounts because demand for the steel making raw material has recovered quicker here than elsewhere.

“The prices accepted by the Japanese are even higher than in the current spot markets,” said Tian Zhiping, vice president of Hebei Iron and Steel Group.

“We think there’s room for a bigger reduction, and we expect the steel association to continue talking with miners,” Tian said.

The China Iron and Steel Association, which leads the price negotiations on behalf of China’s steel industry this year, has consistently said it wants a cut of 40 to 50 percent. The association called an emergency meeting yesterday after the Rio-Japan deal according to an industry official but the group made no public comment.

Shan Shanghua, secretary general of the association, couldn’t be reached for comment. He last week said China would seek better prices. He denied reports that China had agreed on a 30 to 35 percent cut following news that Japanese mills were close to finalizing contracts with reduction of that size.

“We don’t expect China will accept the prices initially, but it would be very difficult for China to win a greater discount than Japan given the fact China’s iron ore demand is better than in the international markets,” said Luo Wei, an analyst at China International Capital Corp.

But Gong Sheng, vice chairman of Shagang Group, a leading private-sector mill, said China shouldn’t compromise. “Term prices should be lower than spot prices. The prices that Japanese mills have agreed on would mean Shagang will almost make no money under current market steel prices,” Gong said.

(Shanghai Daily May 27, 2009)

Twenty-nine large and medium-sized Chinese steel producers reported 5.18 billion yuan (762.46 million U.S. dollars) in aggregate losses in the first four months, the China Iron and Steel Association (CISA) said Friday.

The 29 producers were among 72 surveyed by CISA, the association’s vice chairman, Luo Bingsheng, said.

The 72 companies reported 575.59 billion yuan in revenue, down 18.9 percent year on year, Luo said. They paid 15.42 billion yuan in taxes, down 85.07 percent year on year, Luo said.

Losses were mainly caused by slumping domestic steel prices, Luo said.

Many producers have cut costs, and the production cost of steel dropped 13.75 percent in the first quarter, Luo said.

(Xinhua News Agency May 22, 2009)

China will unveil its first iron ore trade platform Rizhao International Iron Ore Trade Center on May 25 in Shandong Province, which signals that the establishment of the country’s iron ore price index is under way, Bai Wenhui, executive of Shandong Huaxin Trade Co. Ltd., one major shareholder of the trade center, told Xinhua Friday.

Jointly invested in by five local private companies pursuing bulk commodity transaction in Shandong Province, the center mainly provides electronic commerce services for iron ore suppliers and steelmakers. Its registered capital totals 20 million yuan (US$2.93 million).

The trade center offers services including electronic transaction, information exchange, quality inspection, storage, transportation, insurance, and settlement for the two parties in iron ore trading, according to Wang Lei, head of the preparation team for this program.

“As the biggest iron ore importer, China has not set an iron ore price index to date. The iron ore trade center will promote orderly iron ore imports and standardize activities of trading parties, and gradually facilitate China to launch its own iron ore price index in the future,” said Bai.

Data from China Customs shows that the country imported 443.7 million tonnes of iron ore in 2008, half of the world’s overall iron ore exports volume over the year, and the imports in January-April period in 2009 hit 188 million tonnes.

(Xinhua News Agency May 22, 2009)