Fed: Ore import ban designed to pressure price drop: Stratfor

AAP General News (Australia)
04-06-2010
Fed: Ore import ban designed to pressure price drop: Stratfor

CANBERRA, April 6 AAP - China's proposed two-month suspension of imports of iron ore
from three major mining companies, including Australia's Rio Tinto and BHP Billiton, was
intended to pressure them to drop prices, says a US thinktank.

Stratfor, a private sector intelligence group, said a two-month hiatus would not have
much effect on their bottom line as China still required iron ore, as did Japan and South
Korea.

It said this move, plus other tensions between miners and China, could force companies
to drop their benchmark price and operate solely on the spot market or on short-term contracts
reflecting actual market price.

"A Chinese industry group run by the government has asked its steel companies to refrain
from importing iron ore from three major mining companies in an effort to pressure them
during price negotiations," Stratfor said in a recent analysis.

"Although two months without iron ore orders may temporarily hurt the miners' bottom
line, China's demand for imported iron ore nevertheless continues, and the overall impact
will not seriously affect the companies."

In the latest move, the China Iron and Steel Association (CISA) has asked domestic
steel firms and traders not to import iron ore from Rio Tinto and BHP Billiton and Brazil's
Vale for two months.

CISA said this boycott was the most effective means to fight the "monopolistic behaviour"

of the three iron ore giants.

Stratfor said China needed iron ore to fuel its economy. Total demand in 2009 was 870
million tonnes and was expected to be close to 990 million tonnes in 2010.

Optimistic estimates of domestic production was 430 million tonnes, although of lower
quality ore.

So China still needed to import 560 million tonnes to satisfy demand.

In 2009 the three companies produced 607 million tonnes for export, compared with just
200 million tonnes from all other exporters combined.

"Even if other ore-producing nations such as Canada, India and other South American
countries were to sell their entire production to China - which will not happen of course
- and China's own supposed 75 million tonne stockpile is added to the tally, China still
needs about 290 million tonnes to meet demand.," Stratfor said.

"Thus, even though China may be able to suspend imports for two months, it still needs
the big three to meet demand."

Stratfor said the Chinese government believed that as the world's largest iron ore
consumer, it should have a say in the prices although that had done little to reduce prices.

As well, Japan and South Korea had already agreed to prices upward of 90 per cent over
last year's rates.

Stratfor said CISA did not have good form in conducting price negotiations.

"CISA is the organisation responsible for wrecking the 2009 annual negotiations due
to its inexperience in corporate negotiations and its bureaucratic intransigence," it
said.

AAP mb/it

KEYWORD: CHINA STEEL STRATFOR

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