Spot iron ore boost expected as talks stall

Chinese steelmakers and Australia’s iron ore exporters have operated under the pricing arrangement for more than four decades, agreeing a set price for all contracted iron ore shipments.

The new contract year began on April 1, but despite separate agreements with Japanese, South Korean and Taiwanese mills, mining heavyweights Rio Tinto and BHP Billiton had not secured prices with Chinese steelmakers last night.

The miners have previously supported a shift to the spot market, where Rio Tinto has already begun selling substantially more of its ore.

Chinese steelmakers want a cut of more than 40%, taking into account reduced demand, but the miners are pushing for a price cut of 33%, in line with agreements reached with other steelmakers.

Talks were said to be continuing, despite the expected expiry of many of the existing contracts.

It comes as China’s recovery continues apace, with capesize freight rates bouncing back to almost US$100,000 a day, up from lows of just US$2,000 late last year.

About 11% of the world’s capesize fleet of bulk carriers is queuing off Chinese ports waiting to unload, mirroring similar congestion experienced by empty bulkers off Australian ports in 2007 and 2008.

However Lloyd’s List reports that the Chinese recovery could be short-lived.

London brokerage Howe Robinson said monthly iron ore imports into China spiked to 57m tonnes in April, but that could fall back substantially until well into 2010.

Howe Robinson forecasts that Chinese iron ore imports could hit 530m tonnes in 2009, rising to 565m tonnes next year and 580m tonnes in 2011.

The global steel industry accounts for about half of dry bulk shipping demand.

World production would total 1.3bn tonnes in 2010, according to Howe Robinson.