Steelmakers, paying 90 percent more for iron ore, have to raise prices to pass on the higher raw material costs, the World Steel Association (WSA) said.
The move by iron ore exporters this year to abandon a 40-year custom of setting annual prices in favor of quarterly contracts is a “very negative trend,” WSA chairman Paolo Rocca said in an interview in Beijing yesterday.
The change and the higher costs that it entails “will affect our customers,” he said.
The association last month called on authorities globally to examine the iron ore market after Brazil’s Vale SA won a 90 percent price increase from Japanese mills for quarterly contracts starting on April 1.
Posco, Asia’s third-biggest steelmaker, raised prices for its products this month by as much as 25 percent because of escalating costs. In Taiwan, China Steel Corp (中鋼), the nation’s biggest steelmaker, has raised prices three times this year, a 17.8 percent increase in total, and said last month more increases were in the pipeline for the third quarter.
“I think we have no alternative but to transfer the increase in costs to the market,” Rocca said.
Quarterly ore pricing “will [make] our industry less competitive against the aluminum and raw material industries. This will affect our industry,” he said.
Vale, BHP Billiton Ltd and Rio Tinto Group account for about two thirds of the globally traded iron ore market, estimated at US$200 billion a year, according to Credit Suisse Group.
The Chinese government last month said it was investigating the possibility that the three companies may be monopolizing supplies of the steelmaking ingredient.
Rio Tinto and BHP Billiton, the second and third-largest exporters of the material, are also proposing combining their operations in Australia into a 50-50 joint venture to save at least US$10 billion. The proposal is under review by competition authorities in Europe, Australia, South Korea and China.
The combination will “severely hamper our steel industry, as this will create excess concentration,” Rocca said.
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