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Odds for bigger ore price trim seen

A global iron ore oversupply, lower spot prices, and huge stockpiles in China's domestic iron ore market may help Chinese steel mills in securing a deeper cut in its iron ore price negotiations with overseas suppliers, an analyst said yesterday.

The China Iron and Steel Association refused on Sunday to accept the same price cut reached between Rio Tinto and Japan's Nippon Steel Corp, and insisted on a price discount of more than 40 percent in annual contracts.

Analysts and insiders believe an excessive global supply and a considerable decline in demand have imposed great pressure on the miners amid the worldwide economic downturn.

"The global iron ore supply surplus is estimated to be between 200 million and 300 million tons," said Luo Bingsheng, vice chairman of the CISA in Shanghai, on Tuesday.

The total iron ore demand is set to drop between 150 million and 200 million tons this year, said Xu Xiangchun, chief information officer of on Wednesday.

"Despite a 33-percent price cut, the long contract price is still US$8 to US$9 higher than the spot price," said Du Wei, an analyst at Umetal, a Beijing-based information provider.

Luo also said China's steel makers would turn to spot pricing, abandoning the benchmark price system, if suppliers deny their request for a 40 percent to 50 percent price cut.

Huge stockpiles should prompt China's steel makers to call for a bigger cuts in iron ore prices in the negotiations, Du said.

The latest data from the shows that iron ore stocks at major Chinese ports exceeded 70 million tons by Sunday.

However, analysts and insiders believe the negotiation will drag on beyond the end of June.

Luo said China's steel mills lost 5 billion yuan (US$732 million) in the first four months of this year.

If the CISA compromises, the long contract price would be set high during the peak season, and China's steel plants would suffer more losses from high costs, said Du.


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