China on the back foot, analyst

Suggestions that the recent iron ore deal between China and Fortescue could make it easier for China to push prices down in future negotiations may be incorrect.

Suggestions that the recent iron ore price deal secured between China and Fortescue Metals could make it easier for China to push down prices in future negotiations are incorrect, a leading resource analyst told MINING DAILY.

James Wilson of Perth’s DJ Carmichael said that China may have backed itself into a corner through its determination to hold out for a larger price cut with Rio Tinto and BHP Billiton.

“Between the two of them Rio and BHP are producing around 270 million tonnes of iron ore out of the Pilbara, and that makes them more of a price maker than a price taker,” Wilson said.

“Given the fact the Chinese have held out so long on prices they are on the back foot.

“I think the Chinese may have missed the iron ore boat.”

Fortescue’s deal with China represents a 3% decrease in the benchmark price negotiated by Rio and BHP with Japan and Korea.

China has been holding out for a price cut in the range of 40%

According to Wilson, China’s ever growing appetite for iron ore and the market’s continued recovery have greatly weakened the country’s bargaining position.

“The market is better and the world is in a better place than it was six months ago and demand is being reflecting that,” he said.

“The Chinese have also imported their largest amount of iron ore ever in the last six months.

“How can you say that you want a bigger price decline than everyone else when you are importing hand over fist?”

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