It is reported that WISCO (Wuhan Iron and Steel Corporation) signed a cooperation agreement with China’s logistics and shipping giant SINOTRANS Friday to conduct cooperation in iron ore and steel shipping.

WISCO, the parent company of Wugang, is one of China’s major state-owned steel enterprises. Currently, the company is striving to expand business in Central and Southwest China, which will need lots of shipping support.

SINOTRANS, the largest key inland shipping corporation and the third largest shipping company in China, possesses worldwide businesses in both comprehensive logistics and shipping.

Earlier, WISCO started strategic cooperation with China Shipping Company, another shipping giant, from October 2007 when the then shipping cost was too expensive even to exceed the iron ore price.

It is reported that the debate over the next year’s iron ore benchmark prices has got off to an acrimonious start with China seeking to separate its negotiations from other countries while global giant miners refuse to budge downwards on prices.

Shan Shanghua, secretary-general of China’s top iron ore negotiator China Iron and Steel Association (CISA), said on Friday that iron ore contracts should run for a calendar year instead of beginning on April 1, according to the Japanese financial year.

“We will not insist on other countries taking China’s iron ore price as a reference,” he said at an iron ore conference in the coastal city of Qingdao.

The iron ore conference is usually regarded as the unofficial start of benchmark price negotiations for the next contract year.

“There may be another failure in agreeing a benchmark price next year, as happened this year, if CISA sticks to its position,” a mining executive familiar with the negotiations told China Daily on the sidelines of the conference on Friday.

“BHP prefers to use spot prices, which are market-oriented and index-linked,” he said. “If both sides are not happy with the benchmark price negotiation, the next year ore trading might again be based on spot rates.”Iron ore is the only commodity that is negotiated with a benchmark price system. Other commodities such as copper and oil are linked to an index.

This year’s iron ore price negotiations became deadlocked in June when China insisted on a 45-percent discount on 2008-09 prices after a 33-percent cut in benchmark iron ore prices had been set with other Asia steel mills.
Shan said Chinese steel mills would not be able to make money at the current price that iron ore producers are demanding because an oversupply is causing steel prices to fall sharply.

“If the demand side is always losing money while the supply side is always making huge profits, can that relationship survive long?” he asked, insisting that global miners should offer better terms.

Chinese iron ore imports rose 36 percent to 469.4 million tons in the first nine months from a year earlier, the Customs said on Oct 14. Shipments have exceeded real demand by 50 million tons, the steel association said on Oct 12.

But mining executives from iron ore producers said the iron ore price was driven by demand, even if the demand side suffers lower profits. As long as the demand is there, there will always be possibility of rising prices.

Miners are optimistic because the economic recovery is leading to increased demand for steel.

Samarco Mineracao, an iron ore pellet joint venture between miners BHP Billiton and Vale, expects to produce at full capacity next year as demand recovers, its chief commercial officer, Roberto Lucio Nunes de Carvalho, said on Friday.

“Our expectation is to produce at full capacity of 22 million tons in the next year,” he said. “Industry demand is improving. Next year will be much better than this year.”

However, some Chinese steel mills are not optimistic about next year’s steel demand. China’s steel industry may end up losing money next year as oversupply weighs on prices. That might force steel companies to cut production next year, said Han Weidong, deputy chief of the market section of Hebei Iron and Steel Group Co Ltd.
“China’s domestic steel demand is unlikely to reach 600 million tons next year, while tight bank lending next year could hurt both demand for steel and expansion at steel mills, restraining growth in iron ore consumption,” he said.

A sales representative from a Hebei-based private steel company also said his company felt times were hard now because steel prices have fallen sharply since August and the iron ore spot prices remained at a high level. He also said that if the situation continues for a month, they may make cutbacks.

It is said from Shan Shanghua (secretary general of China Iron and Steel Association) that the world’s iron ore supply next year will still exceed the overall demand.

“It will be hard for steel production in the United States and the European countries to fully recover next year when the financial crisis is not really ended yet,” Shan said.

An industry insider also indicated that although the global demand might grow next year, it would still be less than the supply.

It is said from Shan Shanghua (general secretary of China Iron & Steel Association) that CISA will strictly adopt a unified price and the agency system for imported iron ores next year.

CISA is reported to have removed about 10 enterprises off the list of companies with iron ore import qualification, while the association always added some new members to list in the past years. “It shows how determined CISA is in regulating the market.” Said an official with CISA.

A senior official of Shandong Iron & Steel told 21st Century Business Herald that CISA is actually preparing for the 2010 international iron ore negotiations now.

“Although CISA declares that negotiations for the 2009 prices are still going on, there won’t be any new results. We have begun preparing for the 2010 negotiations, but haven’t stated any real talk with the three iron ore suppliers.”

The senior official said.The three iron ore suppliers are Vale, BHP Billiton and Rio Tinto.At mid September, Tom Schutte, chief of BHP’s Sales Department, said that the talk for iron ore price in 2010 would start this October.

Although iron ore price talk is declared to start in October each year, the routine is that the real negotiation only begins in next year’s January, and both sides use the strategy of “playing for time” to add to its bargaining chip.Investment banks like Goldman Sacks, Merrill Lynch, UBS and JP Morgan, expect the iron ore price of long-term contracts may rise between 10 to 20 percent in 2010.However, Zeng Jiesheng, analyst with China’s information provider MySteel.com, says the investment banks may be exaggerating and the final price will largely rely on the market demand and supply.

According to MySteel.com statistics, Iron ore stock at major Chinese ports reached 73.32 million tons by 18 September. Currently, Chinese steel plants and traders are stocking iron ores on a dim outlook towards the 2010 international talk.

It is said that the Chinese market is becoming increasingly important to international iron ore giants.

The Anglo-Australian mining company Rio Tinto said Monday that its 750 million US dollar sale of iron ore assets, including the Corumba mine to Brazilian competitor Vale, has been approved by the Brazilian Defense Council.

Rio sold the core assets not only to repay debts and reduce liabilities, but also because it has gradually lost its advantage in the global iron ore market.

The case in which Rio employees were accused of obtaining commercial secrets and bribery has given rise to Vale’s market share in China. Apart from large advertising campaigns in China’s mainstream media, Vale even planned to touch down on the Chinese stock market.

CSLA’s China chairman Wu Changgen said on Monday that many multinational companies including Vale have inquired about A-share listings and intend to list on the international board on the Shanghai Stock Exchange.

Statistics show Brazil’s iron ore exports to China came to 82.620 million tons during the first half of the year, up 28.06 million tons from the same period last year. Its exports to Japan, South Korea, and the European market respectively declined 8 million tons, 1 million tons, and 30 million tons.

It is said from ecperts that China has taken 71 percent of Brazilian iron ore exports to date. The Chinese market is critical to Vale’s success on the global market.