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Vale risks losing China market over unexpected price hike

(Xinhua)
Updated: 2008-09-29 10:20

Chinese industry analysts warn Brazil's mining company, Companhia Vale do Rio Doce, it would probably lose the Chinese market. Major Chinese steel makers and iron ore suppliers decided to suspend imports from Vale because of the company's price hike on iron ore.

Chinese analysts called Vale's move untimely and unreasonable since market demand for steel products was weak in both China and other parts of the world.

Untimely, unreasaonable

The China Iron and Steel Association (CISA) announced Thursday that all its members would use domestically-produced iron ore and stop importing iron ore from Vale, saying the company breached an earlier agreement by raising prices for the second time this year.

The announcement came two days after the CISA called an urgent meeting to discuss a response to Vale's price hike. At the meeting, major Chinese steel makers signed supply contracts with domestic mining companies in a bid to replace Brazilian iron ore with "Made-in-China" ore.

Earlier this month, Vale raised the price issue for major Chinese iron ore buyers including Baosteel and Wuhan Iron & Steel, claiming that Chinese steel producers paid about 11 percent less than their European counterparts.

Vale said then it was talking with Asian buyers about an 11 to 11.5 percent price hike.

Chinese clients, however, refused such a proposal after already accepting a 65 percent price increase this February with Vale. As a result, Vale ceased iron ore supply to Chinese clients.

Luo Binsheng, the CISA vice chairman, said Vale picked the wrong time to raise prices.

"Vale should be aware that China doesn't need that much iron ore now. Demand for import iron ore is becoming weak since domestic output of iron ore has significantly increased," Luo said.

In addition, imported iron ore stockpiles at Chinese ports had reached more than 80 million tons so far, according to Luo .

Du Wei, a senior steel industry analyst with the Chinese Umetal.com website, said Vale's price is hike "untimely".

Amid global economic downturn and a slowdown in the Chinese economy, demand for steel products was shrinking and steel prices dropping forcing Chinese steel makers to cut back output. This, in turn, led to a decline in market demand for iron ore, Du said.

"At this point, Vale's supply cut doesn't matter that much to China but it may risk losing the Chinese market altogether if it continues to stick to the price hike," she said.

Statistics showed that the country produced a total of 216 million tons of crude steel in the first half this year, up 9.61 percent from the same period last year. The increase, however, was 9.31 percentage points lower than last year's growth rate. Increase of blast-furnace cast iron also dropped 8.95 percentage points year on year.

In June, China imported 27 million tons of iron ore, down 6.37 percent from a year ago. The figure was also 2.61 percent less than the previous month, according to the General Administration of Customs.

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