MercoPress. South Atlantic News Agency

Chinese relief: iron ore market turns into buyer's market

Iron ore miners face the prospect of the first price cut in seven years as steel production in China and elsewhere plunges amid the global downturn. The iron ore market has turned from a seller's market to a buyer's market, according to traders

After an informal meeting last week at a conference in the Chinese city of Quingdao, traders and bankers said a cut of 10-20% was a likely outcome of the formal negotiations, due to begin in November, for annual contracts. However they also warned that chaotic global economic conditions made any forecast highly tentative. After this year's record 85% jump in iron ore prices, a price reduction would damp the cost of cars, machinery and construction materials, contributing to lower inflationary pressures just as central banks slash rates. Bankers said a price cut would only make a small dent in miners' revenues as ore prices have jumped more than 300% in the past five years. Any cut would be the first reduction since iron ore prices fell 2.4% in 2002, when the global economy slowed in the wake of the dotcom bubble. The first formal contacts of the secretive – and often acrimonious – annual negotiations will take place between Chinese steel millers led by Baosteel and miners Vale Docce from Brazil, Rio Tinto and BHP Billiton, both Anglo-Australian. Chinese steelmakers appear to be pressing for a quick agreement, taking advantage of current soft demand and low prices in the spot market. But mining executives said they were in no rush to settle until the second quarter of next year, betting that demand will have recovered by then, helping them to avoid a price cut. Iron ore spot prices in China have fallen to less than 70 USD a ton, down from an all-time high of close to 200 a ton earlier this year as steelmakers cut production and run down stocks rather than buy fresh cargoes. The spot price was currently below the estimated cost of Australia's annual ore contracts, including freight costs, of about 90 USD a ton, traders said. The contracts are for the year starting in April 2009. In the past, the settlement has been reached as early as December and as late as June.