A pricing face-off is looming after Chinese authorities rejected new benchmark iron ore prices negotiated last week between Rio Tinto and steel mills in Japan and South Korea.
China’s leading negotiator of steel prices, China Iron & Steel Association (CISA), yesterday announced it would not agree to the annual contract price cuts of 33% for iron ore fines and 44% for lump.
According to CISA, the agreed price cuts do not represent actual levels of supply and demand in the international market.
“These prices do not reflect a mutually beneficial, win-win relationship for steel makers and iron ore suppliers,” the company said.
“CISA therefore cannot accept these prices and will not follow them.”
Rio Tinto Coal last week announced it had struck a deal with Japan’s largest steel maker, Nippon Steel Corporation, to receive US$97 per dry metric tonne of iron ore and US$112 per tonne for Rio’s premium Pilbara Lump product.
Rio has also since agreed to an average 37% price cut with South Korean steelmaker POSCO.
Despite the significant drops, the deals still represent the second-highest price settlement in history.
Industry speculation suggests that Chinese steelmakers are holding out for a price cut of around 45%.