Miners may see iron ore prices fall in 2009
Vale withdraws mid-contract price-hike proposal
By Tom Stundza -- Purchasing, 11/5/2008 1:39:00 PM
 Iron ore being unloaded in China |
Big iron-ore miners expect pressure from the world's steelmakers for significant price cuts--20% to 40% less than this year's levels--when supply contract negotiations open. Vale of Brazil, the world’s largest iron ore producer, already has withdrawn a mid-contract hike of 12% proposed earlier to Chinese steelmakers.
With demand for autos, construction infrastructure and appliances weakening, steelmaking is being throttled down globally. That’s why Baosteel, the huge Chinese steelmaker than negotiates iron ore supply pacts for most of that country’s steelmakers, already has said it expects to see lower, not higher, iron ore prices in 2009.
Vale increased its iron ore price by 71% to about $85/metric ton in early 2008 but had been asking for 12% higher prices this autumn from Chinese steelmakers and had been threatening to stop the shipments of iron ore if China steelmakers refuse the proposal. The Chinese media has reported that the price increase and delivery threats have dissipated.
Vale also has announced it will slash iron ore production by 10% of capacity, or 30 million metric tons, in the last two months due to the impact on steelmaking from the worldwide financial crisis and slackened economic growth. Vale also indicated in a statement that so far for this year, they already shipped 320 million tons of iron ore, but the total will plunge by about 20% from last year. Rio Tinto, another global supplier, and Cliffs Resources in the U.S. also are reducing production at some of mines and idling pellet-making facilities.
And now, The Wall Street Journal is reporting that Vale, BHP Billiton and Rio Tinto--who as a group control about 75% of the world's iron-ore production--are girding for price-cut proposals when the 2009 contracts are signed next spring. That would be a sharp reversal from this year, which had seen spot prices more than triple to $200/metric ton before the recent slide back to $70.
The trendsetter for global iron ore contract prices is China simply because it makes more steel than anywhere else. However, China's economy grew by 9% in the third quarter, the slowest in five years. This fact, together with the slowing global economy since this summer, has left Chinese steel mills with unsold metal and an unprofitable month of October.
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