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Baosteel Says Buying Iron Ore Based on Quarterly Pricing, Platts Index

https://en.steelhome.com [SteelHome] 2011-09-01 09:54:31

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China's Baoshan Iron & Steel is currently buying iron ore based on quarterly prices calculated using Platts' iron ore index IODBZ00-PLT, Deputy General Manager Chen Ying said on Wednesday.

The Platts index is one of the three major global iron ore indexes, with the two others being Metal Bulletin Iron Ore Index .IO62-CNO=MB and The Steel Index <.IO62-CNI=SI.

Chen did not specify what proportion of Baosteel's ore was being purchased in that manner, but said there were currently "no negotiations" involved in pricing iron ore. She was responding to queries in an online briefing.

Iron ore prices were traditionally based on the "benchmark", an annual contract price negotiated by major buyers and suppliers.

But the three dominant global miners -- Rio Tinto , BHP Billiton and Vale -- abandoned the decades-old system last year after 2009 negotiations with top buyer China ended in acrimonious stalemate.

While China's steel mills have already come to terms with a more "market orientated" pricing system, they continue to claim that the health of the sector is being harmed by the "monopoly practices" of the big three global iron ore suppliers.

"In the long term, only a more balanced distribution of profits between the upstream and downstream parts of the steel industrial chain can be of benefit to the overall health of the sector," Chen said.

Baosteel's net profits fell 37 percent in the first half of 2011, and the company's poor performance was partly blamed on soaring raw material prices. The company said its gross profit per tonne of steel amounted to 420 yuan ($66).

The company's general manager, Ma Guoqiang, said at the same online briefing that profits were likely to grow significantly next year as a result of higher demand.

However, iron ore prices were still expected to remain high for the remainder of this year and next year, and the market was likely to continue to favour miners for at least two years, with supplies only set to improve after 2013 when a number of new projects go into operation.

Ma said the sector was still facing risks from the growing "financialisation" of iron ore prices.

Baosteel was still looking to resolve the monopoly of supply by investing in overseas iron ore mines at a proper time, he added.

Ma also expected little chance for steel prices to rise or fall significantly in the fourth quarter due to still high iron ore prices and the lack of remarkable growth in steel demand.

Source: Reuters

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