Will this alarm bells affect iron ore producers such as AGO, FMG, SDL? in the short term?
Alarms bells as China Steel asks to stall delivery BY: MATT CHAMBERS From: The Australian November 19, 2011 12:00AM Source: The Australian
TAIWAN'S China Steel says it has asked BHP Billiton and Rio Tinto, and other Australian coking-coal miners, to delay or cancel iron ore shipments.
While the move could be a negotiating tactic so China Steel can move off expensive lagged pricing, the statement is likely to set off alarm bells for investors burned during the global financial crisis when China stopped taking contracted Australian iron ore.
Yesterday, the three big Australian iron ore miners BHP, Rio and Fortescue all reinforced previous comments that there had been no deferrals and all the ore they could produce was being bought.
But neither BHP nor Rio denied they had been approached by China Steel.
Iron ore industry sources suggest China Steel, which is understood to buy its ore from Rio on lagged quarterly pricing, could be making the statement in an attempt to move to current pricing while spot prices are low.
China Steel was in talks with BHP, Rio, Brazil's Vale and "numerous" coking-coal miners in Australia to cut or defer shipments of iron ore and coal, a senior company official said.
"We have to take necessary measures to cope with the falling demand from our downstream customers," the official said.
"It's very difficult to tell how long the deferral will last . . . we expect the first quarter will still be tough."
Earlier this month, China Steel, which sells three-quarters of the 10 million or so tonnes of steel it produces to domestic buyers, said it had cut production rates because of dwindling domestic demand and weaker steel prices.
It is understood BHP, which converted all its pricing to monthly before recent steep falls in iron ore prices, is not prepared to budge on its contracts.
Rio and Vale, however, have told Chinese mills they are prepared to switch from lagged quarterly pricing, which is still capturing iron ore pricing of about $US170 a tonne, to spot or more current pricing.
This mean Rio and Vale will give up access to the higher prices, in a move that Citi has estimated could, when combined with the price slump in iron ore, wipe up to $US3 billion off Rio's bottom line in the next two years.
At BHP's annual general meeting in Melbourne on Thursday, chief executive Marius Kloppers said smaller buyers in the iron ore market were starting to have problems getting letters of credit.
"This is about credit availability and, I think, a little bit of opportunism where some customers, not ours, had quotational periods that were different from the shipping period," Mr Kloppers said, adding that conditions were not similar to 2008.
At the annual meeting, BHP chairman Jac Nasser said the eurozone crisis was starting to concern its Chinese customers, and the global miner had become more pessimistic about the global outlook.
When the global financial crisis hit hard in 2008, many Chinese mills stopped taking contracted Australian iron ore, which was especially painful for Mt Gibson Iron, and in October that year was the first to announce its customers wanted deferred shipments.
