China Tells

再过不到一个星期便是中国钢铁协会和三大矿业巨头谈判的最后时刻。目前看来形势不容乐观。三大巨头已经同日韩铁矿石进口商谈好价格，并且从中国目前铁矿石进口的趋势来看有增无减。外媒分析员纷纷猜测中国钢铁协会别无选择只能认宰。由此显现出崛起大国对资源需求和定价权的无奈。

SHANGHAI/SEOUL, June 24 (Reuters) – With less than a week before the deadline to agree on a price for annual iron ore contracts, it is increasingly clear that China faces two unpalatable choices — buying all its ore on the spot market, or swallowing the same deal agreed by rivals.

A slight but perceptible recovery in both steel and iron ore prices has undercut China’s demands for a bigger price cut than the 33 percent that other Asian mills agreed.
To save face, the China Iron and Steel Association may come up with a deal at the same price as miners Rio Tinto, BHP Billiton and Vale agreed with Japanese and Korea mills, but build in wiggle room to benefit if prices fall by pegging contracts to spot prices.
For the moment, however, things appear to be playing into the miners’ hands, with spot prices now almost as high as the recently settled long-term contract prices, and the prospect of a longed-for shift toward spot market pricing tantilisingly close.
“With spot iron ore and steel prices on the rise, the miners are unlikely to concede bigger contract price reductions with their Chinese customers than those already confirmed in Japan and Europe,” Goldman Sachs JBWere analyst Malcolm Southwood said.
Spot prices to China have recovered to a four-month high of $77.50 a tonne including cost and freight, or around $60 free on board, roughly in line with the price of contracted Australian fine iron ore agreed between Rio Tinto and Asian mills.
“I don’t see Rio giving in as they can sell on spot for a better price. Why would you? And while the Chinese can wave their arms all they want, the fact is the (spot) price is going up,” said James Wilson, a mining analyst for DJ Carmichael & Co.
SPOT THE DANGER
If there is no deal by next Tuesday, a deadline set by Rio Tinto, it could stop contractual sales and instead negotiate prices on a cargo-by-cargo basis — a big gamble for China, which is now importing about half of the world’s traded iron ore.
Massive iron ore stockpiles built up after record imports this year will provide some immediate buffer for mills if supplies come to an abrupt halt, but in reality the shift is underway — Rio has sold half its ore on a spot basis this year.
“The Chinese are likely building inventories to aid in their negotiations to drive down the price of iron ore… They don’t need 75 million tonnes of inventory to support high levels of industrial production growth,” said FBR Capital Markets analysts.
For a graphic on China’s iron ore imports, click: here
Lead negotiator China Iron and Steel Association is reportedly advising its mills not to overbid in the spot market to further drive up prices, but its position has been undermined by the record iron ore imports and rising steel production.
Small mills, eager to fix production costs and prepare for demand upturn, have already signed private deals, ignoring threats from CISA that it would not recognise the deals and revoke import licenses.
Further pressure came last week when ArcelorMittal, the world’s top steel producer, endorsed a long-term contract deal that Vale signed with Asian steelmakers, indicating even Europe, where market conditions are much worse than in China, is preparing for demand recovery.
“Settlement could be a sign of a recovery in demand as ArcelorMittal has been buying little or even none from Vale since October,” Merrill Lynch said in a note this week.
Data from the World Steel Association showed global steel output crept up in May from April and monthly gains could continue as inventories were close to depletion.
NEW DEAL
A failure to win a 45 percent price cut would be a face-losing humiliation for CISA, but in the end it may be forced to approve individual agreements, analysts said.
“They are trying to get the best deal. If they don’t look like they’re in charge, then of course they’ll lose power. So they trying to show ‘we are in charge and therefore we can get the best deal,’” said Scott Laprise, a CLSA analyst.
To save face, it may seek a deal that captures the benefits of spot pricing when attractive and still keeps the long-term supply security of contracts.
“It is asking some terms that had never been seen before… that would allow renegotiation if fundamentals change,” said a source with direct knowledge of the negotiations.
Some analysts predict China may agree a 33 percent cut, but with possible revisions in later quarters, an agreement that would not anger those who have already reached a deal.
“If the Australians and Chinese negotiate a lower price, then others will stand up and say we want a lower price too. That will bring everyone back to square one,” said Wilson at DJ Carmichael.
A Reuters poll earlier this month showed the bulk of analysts thought China will have to accept prices already agreed by other Asian mills, but possibly cut the amount of ore it buys on an annual basis and rely more heavily on the spot market