After seven months of difficult negotiations, Baosteel and Rio Tinto finally reached a maximum increase of 96.5% in the evening of June 23. At this point, BHP Billiton, the only of the three largest iron ore giants in the world, has not signed any relevant agreements with Baosteel. Unlike Rio Tinto, as part of the last iron ore giant BHP Billiton and Chinese steel companies will not expire until September, the results of their negotiations have become the focus of public opinion.
Talking about Benevolence BHP Billiton
Luo Bingsheng, executive vice president of the China Iron and Steel Association, said to reporters before this: “China cannot accept more than 80% of the increase required by the two extensions, and China has already made a plan to collapse.†But it was reached between Baosteel and Rio Tinto. After the agreement, the main person in charge of the China Iron and Steel Association has always refused interviews with reporters.
Some media disclosed that BHP Billiton believes that the plans agreed between Rio Tinto and Baosteel are still unable to smooth the gap in freight rates and try to ask for higher prices. In response, Xu Zhongbo, a steel expert at Beijing University of Science and Technology, analyzed with the reporter of the China Times that: "BHP Billiton either accepts the existing plan, or it completely negotiates and completely changes its spot. Once it breaks down, it is very unfavorable to BHP Billiton and the risk is too great. Because its cargo is mainly supplied to China, the other two major customers Korea and Japan are unlikely to agree to a higher increase. In addition, Australia's FMG will supply more iron ore to China than BHP Billiton next year."
It is reported that FMG is the third largest iron ore company in Australia. It is a listed company with only four years of history. It completed infrastructure construction on April 8 this year. In May, FMG supplied China with its first ship ore. Andrew Frist, FMG's president, publicly stated previously that 95% of the company's production will be exported to China and this year it will export 20 to 30 million tons to China.
Up to now, FMG has signed long-term agreements with 35 large and medium-sized Chinese steel companies for more than 10 years, and the annual supply is nearly 100 million tons. FMG plans to increase production to 60 million tons in 2009 and to 200 million tons in 4 years. Last year, BHP Billiton supplied China with only 40 million tons of iron ore, accounting for only 17% of China’s total iron ore imports.
Ore supply exceeds demand
After the agreement between Baosteel and Rio Tinto was reached, the issue of the negotiation mechanism was suddenly bombarded by the industry, and they all criticized the negotiating mechanism in name only. The previous negotiation mechanism was that as long as one of the iron ore producers reached an agreement with any of the steel companies, other companies must accept it unconditionally.
On June 25, an executive from Rio Tinto China told this reporter: “It is the negotiation mechanism between China and Brazil that is undermined. We just refer to the agreement reached between China and Vale.â€
Four months ago, after reaching a 65% price increase agreement with Vale in China, Lu Jiucheng, president of Rio Tinto China, told this reporter that Rio Tinto hopes that China will give appropriate compensation for sea freight. “But in the final agreement, although the price increase was higher than Vale, Rio Tinto did not receive compensation for sea freight that had previously been maintained.†An Rio Tinto executive in China told the “China Times†reporter.
Paradoxically, the pattern of oversupply of iron ore has emerged after the three major iron ore giants have asked for prices.
Talking about Benevolence BHP Billiton
Luo Bingsheng, executive vice president of the China Iron and Steel Association, said to reporters before this: “China cannot accept more than 80% of the increase required by the two extensions, and China has already made a plan to collapse.†But it was reached between Baosteel and Rio Tinto. After the agreement, the main person in charge of the China Iron and Steel Association has always refused interviews with reporters.
Some media disclosed that BHP Billiton believes that the plans agreed between Rio Tinto and Baosteel are still unable to smooth the gap in freight rates and try to ask for higher prices. In response, Xu Zhongbo, a steel expert at Beijing University of Science and Technology, analyzed with the reporter of the China Times that: "BHP Billiton either accepts the existing plan, or it completely negotiates and completely changes its spot. Once it breaks down, it is very unfavorable to BHP Billiton and the risk is too great. Because its cargo is mainly supplied to China, the other two major customers Korea and Japan are unlikely to agree to a higher increase. In addition, Australia's FMG will supply more iron ore to China than BHP Billiton next year."
It is reported that FMG is the third largest iron ore company in Australia. It is a listed company with only four years of history. It completed infrastructure construction on April 8 this year. In May, FMG supplied China with its first ship ore. Andrew Frist, FMG's president, publicly stated previously that 95% of the company's production will be exported to China and this year it will export 20 to 30 million tons to China.
Up to now, FMG has signed long-term agreements with 35 large and medium-sized Chinese steel companies for more than 10 years, and the annual supply is nearly 100 million tons. FMG plans to increase production to 60 million tons in 2009 and to 200 million tons in 4 years. Last year, BHP Billiton supplied China with only 40 million tons of iron ore, accounting for only 17% of China’s total iron ore imports.
Ore supply exceeds demand
After the agreement between Baosteel and Rio Tinto was reached, the issue of the negotiation mechanism was suddenly bombarded by the industry, and they all criticized the negotiating mechanism in name only. The previous negotiation mechanism was that as long as one of the iron ore producers reached an agreement with any of the steel companies, other companies must accept it unconditionally.
On June 25, an executive from Rio Tinto China told this reporter: “It is the negotiation mechanism between China and Brazil that is undermined. We just refer to the agreement reached between China and Vale.â€
Four months ago, after reaching a 65% price increase agreement with Vale in China, Lu Jiucheng, president of Rio Tinto China, told this reporter that Rio Tinto hopes that China will give appropriate compensation for sea freight. “But in the final agreement, although the price increase was higher than Vale, Rio Tinto did not receive compensation for sea freight that had previously been maintained.†An Rio Tinto executive in China told the “China Times†reporter.
Paradoxically, the pattern of oversupply of iron ore has emerged after the three major iron ore giants have asked for prices.
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