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By Kishori Krishnan Exclusive to Iron Investing News

The talks haven’t borne fruit, as yet. Even as news comes filtering in that China has landed a 40 per cent price cut with the Top Three ore miners, final iron ore talks for fiscal 2009/2010 have yet to see the light of day.

Shan Shanghua, secretary-general of China Iron & Steel Association told Shanghai Securities News that domestic steel mills are set to buy some stocks from the spot market to run their furnaces during the transition period until an annual contract price agreement is reached. And advance payment should not exceed 60 per cent of the 2008 term prices. The suggestion comes as the Chinese side is bargaining to reset the start of iron ore term contracts to January 1st from the traditional April 1st. And the price differential between the advance payment and final price will be balanced after the talks bear outcome.

Usually the benchmark ore talks would only be participated by Baosteel and other 15 leading domestic mills. However, CISA has invited executives of big steelmakers, scholars and consultants to participate the market research this time for hearing views from all sides.

China’s iron ore imports have soared up to an unexpected historical high at 46.74 million tonnes in February stimulated by the CNY 4 trillion stimulus plans announced in January, up by 43 per cent from the month before and 22.3 per cent higher from a year ago. However, the flurry of new arrivals may not necessarily indicate recovering Chinese iron ore demand. Domestic steel producers and traders built up large inventories in the earlier period prompted by the temporary rebound in steel and iron ore market.

Iron ore stockpiles at Chinese major ports have reached 67 million tonnes, up 10 per cent. And insiders predict the stock build up will drag on. Therefore, prices for ore would linger at low levels in the days to come as market enters into another round of a destocking circle.

Big Three

Meanwhile, Vale (NYSE:RIO, SAO:VALE5), BHP Billiton Ltd. (ASX:BHP, LON:BLT) and Rio Tinto Group (LON:RIO, NYSE:RTP), the three largest iron ore producers, are set to engage in a discount competition in China because of an oversupply, Mysteel Research Institute said. According to a Bloomberg report, iron ore sales to Europe and Japan by the three companies may drop by more than 100 million metric tons this year, forcing them to sell more to China should they not slash production, analyst Xu Xiangchun said in Beijing.

Benchmark contract prices for the steelmaking material may drop for two years, undermined by “whopping oversupply,” Citigroup Inc. said. Cash prices of iron ore imported by China, the world’s biggest buyer, fell for a second week last week. Prices had dropped to 600 yuan ($88) a metric ton.

The three iron ore producers, which account for about three-quarters of the traded material, will have to compete with Indian and Chinese products.

Pig Iron

All’s quiet though on the pig iron front. Silobreaker reported that the international pig iron market still continues to be quiet with  few new deals being reported. In Japan, a certain integrated steel company has stopped its pig iron exports after negotiated sales for April shipment.

An unconfirmed piece of information is circulating that Brazilian pig iron has sold at a low price of around USD 250 per million tonne C&F for China, a price level that is estimated at USD 220 per million tonne FOB. As a result, the price level goes to show that the international pig iron market will come down further. Besides, fears linger that increased pig iron cargoes may go on sale in and after April.

Under the existing circumstances, though, it has become already difficult to settle pig iron deals even at a price level of USD 250 per million tonnes C&F because buyers alike want to secure the material at lowest possible prices.

Taiwan’s electric steelmakers are quoted as saying that they are willing to study whether to take pig iron from abroad if low prices are negotiable. They describe a benchmark low price of pig iron as the price of US No1 HMS plus USD 10, a generally accepted price differential between pig iron and high grade ferrous scrap. In this connection, there is information on a South Korean import deal of containerized US ferrous scrap at USD 220 per million tonnes C&F. As a result, it follows that the Taiwanese electric steelmakers’ prices ideas of pig iron imports will stand at a level of USD 230 per million tonne to USD 240 per million tonne C&F.

In India, meanwhile, government affiliated MMTC Limited is scheduled to hold its sales tender for 30,000 tonnes of pig iron. But the world’s metal traders are reacting with little interest.

India story

Indian iron ore FOB spot price have slid by 35 per cent in the last 49 days. The FOB East Coast spot prices of Indian iron ore have plummeted further. This reduction has brought down spot prices of Indian iron ore, by 27 per cent to 35 per cent on March 31st 2009, for various grades as compared to prices prevailing on February 10 2009.

There are three major factors that have resulted in the slide: although the steel prices have been relatively stable in the last week, the market is still sullen due to lack of demand gravitating the prices. The total iron ore stocks available at major Chinese Ports is about 67 million tonne as on March 30 2009, out of which 17 million tonne is of Indian origin. The third factor is that Chinese mills are still in the midst of negotiation with global miners on iron ore contract pricing thereby affecting fluidity.

Company News

Australia’s treasurer Wayne Swan on Tuesday gave his approval for a $844-million (A$1.2 billion) investment by the Chinese steel producer Hunan Valin in Australia’s Fortescue Metals Group (ASX:FMG). The decision comes amid growing concerns and political debates about Chinese investments in Australia. The deal would allow Hunan Valin Iron & Steel Group to obtain a 17.5 per cent stake in FMG, the third largest iron ore producer in Australia after Rio Tinto and BHP Billiton. Hunan Valin (SHE:000932) is the ninth largest steel company in China.

Consolidated Thompson Iron Mines Ltd (TSE:CLM) said that Chinese steel maker Wuhan Iron and Steel Corp (SHA:600005) (Wisco) has agreed to make a $240 million investment in the Canadian mining company in return for a 19.9 per cent stake in the company. Numerous Chinese companies have been acquiring stakes in foreign mining companies, in a bid to secure access to metals needed to fuel the country’s rapid internal growth.

Chinese metals group Chinalco has just arranged a $21 billion loan to finance a major investment in Rio Tinto, while China’s Minmetals has made a $1.7 billion bid for Australian miner Oz Minerals Ltd (ASX:OZL).

The letter of agreement between Consolidated Thompson and Wisco provides for Wisco to make a total investment in Consolidated Thompson of $240 million and in return Consolidated Thompson will issue 29.7 million of its common shares to Wisco. This will represent 19.9 per cent of Consolidated Thompson’s outstanding shares post the transaction.

Furthermore, Wisco will also be entitled to other long-term off take rights at fair market value from both the initial production and future expansion of the Bloom Lake project, as well as from Consolidated Thompson’s Lamelee and Peppler Lake projects.

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