Best of luck to Chinese steelmakers pushing the notion that iron ore prices should be dialed back to 1994 to account for the collapse in their markets.
One should always root for the underdog, after all.
Informal talks have just begun for the 2009 iron ore contract between China’s steel makers — collectively the world’s largest ore consumers — and miners Companhia Vale do Rio Doce, BHP Billiton, and Rio Tinto.
For a mechanism that has a great deal of influence on Asia’s growth, and provides the benchmark around which the price for Korean and Japanese mills will be set — the talks are a remarkably opaque combination of private cajoling and public posturing.
Witness this week’s opening salvo from the Chinese Iron and Steel Association: If steel prices have fallen back to 1994 levels, why shouldn’t the key raw material be cut to the same mark?
That would mark an 80% discount to current terms, a precipitous drop that the big-three iron ore producers could ill afford.
The calculus of the iron ore market in China, however, ensures this isn’t a likely outcome: more than 1,000 steel mills buy 60% of their iron ore from just three companies.