ArcelorMittal sees iron ore prices for long-term contracts rising up to 80pc
STEEL giant ArcelorMittal expects prices for iron ore to rise up to 80 per cent for long-term contracts that have to be extended in the coming month.
"What we're hearing from Asia is in the direction of 70 per cent to 80 per cent," Robrecht Himpe, chief executive of the steel giant's Flat Carbon Europe business, told Dow Jones Newswires in an interview.
He said the company wasn't a big player in terms of iron ore pricing and was a "very small" customer. Two-thirds of ArcelorMittal?s iron ore in 2009 came from its own mines.
The executive said large Asian producers were key to pricing because they were first to negotiate with mining companies.
The prices for the short-term purchasing of iron ore doubled within the year, which has led other experts to say they also expect price increases of up to 80 per cent for the long-term contracts with the mining companies. The contracts have to be extended soon.
Mr Himpe criticised the expected price increases and said "we have to try to find stable levels".
Sharply higher raw material prices are difficult for customers, while steep drops are hard for steel producers.
On the other hand, Mr Himpe understands the raw material suppliers, adding these "are the consequences from the previous year" when steel producers bought less raw materials.
Worldwide raw steel production slipped 8 per cent in 2009; excluding China output, production plunged 22 per cent.
He said the company aimed to largely pass on the price increase to customers. At the end, prices depend more on raw materials costs than demand, he added.
Mr Himpe doesn't expect an increase in new production capacity. He says capacity is flat because of demand, which is below the levels of 2007 and 2008. He says he expects blast furnaces to be more flexible due to customers' low inventory levels.
It is more likely that structural changes will arise in the steel market from plans of iron ore producers to shorten contract durations, he says. If this is the case, "we have to find out together with our customers what the consequences are for their contracts," he says.
Mr Himpe says Chinese manufacturers face more danger than European peers. With low inventories and short-term contracts, European companies have a clear advantage.
GWR Price at posting:
77.5¢ Sentiment: Buy Disclosure: Held
