Steel Price In China

      The first negotiation between steel industry (led by Baosteel) and major iron ore supply has come to the end, and no agreement is reached. The negotiation focused on the extent of the rise. Steel industry hopes that the looming rise can be less than 30%, while international iron ore suppliers intend to raise prices by 70%.
      Chinese Steel Industry Association predicts that Chinese iron ore import volume will increase 40 million mt in 2008, and demand from other countries will grow by 20 million mt in 2008.  Meanwhile, global iron ore supply will grow 70-80 million mt. That is to say, supply will be balanced with demand in 2008.  However, ocean freight for iron ore is slumping at present, which will be a bargain chip for Chinese steel industry.
      It is calculated that Chinese steel industry’ production costs will rise by RMB177/mt if iron ore prices (excluding ocean freight) rise by 30%, RMB295/mt if 70%, and RMB412/mt if 70%. (the RMB exchange rate against USD is supposed at 7.3: 1)
      By early January, 2008, steel prices have risen by RMB215-478/mt or 3.63-10.57% over the past two month, which means Chinese steel mills can sallow up iron ore price increase within 50%. But if the extent is above 50%, the iron price increase, coupled with rises in coal prices and freight, will give huge pressure on Chinese steel industry. (From Dongfang Daily) 

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