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Nation steels itself against further price hikes
By Xie Ye (China Daily)
Updated: 2005-04-09 06:26
Steel makers adopted a hard line during negotiations with Australian mining
company BHP Billiton Ltd on the price of iron ore, claiming they would not
accept any unreasonable requests "under any circumstances."
The China Iron and Ore Industry Association, representing 16 major domestic
steel makers, said on Thursday that BHP's demand for a premium on prices of iron
ore violated international practices.
"Their behaviour will destroy the four-decade-old negotiation mechanism for
international ore prices, and will severely damage the development of China's
iron and steel industry as well as China's economy," the association told Xinhua
News Agency.
The remarks came after BHP requested an extra US$7.5 to US$10 a ton following
a hike in global prices of 71.5 per cent this year alone.
Xinhua reported that Chinese companies would not kowtow to BHP's demands,
even if they have to cut steel output.
"Chinese companies have prepared, and hammered out plans to cope with the
worst case scenario," said the report.
The association refused to comment on the report on Friday.
A spokeswoman from Shanghai Baoshan Iron and Steel Company, one of the 16
firms, told China Daily that the association and her company's stance were one
and the same.
China, the world's largest steel maker, imports about half of its consumption
of iron ore - the raw material required to produce steel. The country imported
208 million tons of it in 2004.
Australia is the biggest exporter of iron ore to China, making up 37 per cent
of China's imports last year.
And it is estimated that BHP accounted for one-third of all shipments from
Australia.
Industry analysts said the price hike would erode the profits of steel makers
because they would have trouble passing on the costs due to an oversupply of
steel.
Excessive capacity
China's steel production capacity is expected to increase by 15 per cent this
year, while demand is to rise no more than 10 per cent, according to Wu
Xianfeng, a steel industry analyst with Guotai Jun'an Securities (Hong Kong).
On Friday, Baoshan Iron and Steel shed 2.2 per cent to end at 6.15 yuan (74
US cents) on the Shanghai Stock Exchange. Wuhan Iron and Steel Co Ltd, another
major steel firm, dropped 3.5 per cent.
The two companies have slumped 6.5 per cent and 10.3 per cent respectively
since February 23 when news broke that the price of iron ore would increase by
71.5 per cent industry-wide.
More industries affected
But the steel industry is not the only one struggling to cope with the price
hike. Big steel consumers, such as the automobile, home appliance, shipbuilding
and real estate sectors will be hardest hit as the increase is passed on.
China's economy, as a whole, is also likely to suffer.
Niu Li, an economist with the State Information Centre, said the upswing in
raw material prices, including oil, coal and steel would fan the flames of
inflation.
Zhou Wei, an analyst with Xiangcai Securities, said the increases may press
the central government into increasing the interest rate by 50-70 basic points
this year.
Beyond its economic significance, the iron ore issue could also have
political repercussions, Chinese officials warned.
"The continuous iron ore price increase will damage relations between China
and Australia," said Ma Xiuhong, vice-minister of commerce during a recent
seminar on a Sino-Australia free trade agreement, last month.
The China Chamber of Commerce of Metals, Minerals & Chemicals Importers
& Exporters said in a statement on Friday: "The behaviour of some of our
suppliers goes against international trade practices, and damages the long-term
stability of the international iron ore market.
"To keep the price at a reasonable level complies with the long-term
interests of both buyers and sellers. Any move to impose one's demand on others
is undesirable."
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