South Korea’s Posco has now followed its fellow steelmakers – ThyssenKrupp of Germany, Mittal Steel and the Japanese collective – in agreeing to a 19% increase in iron ore contract prices. The question is: when will China follow suit?
Beijing had every right to be shocked at the 71.5% iron ore price increase that the miners and steelmakers agreed on last year. It wasn’t so much the huge price hike itself as the fact that China, as the world’s largest iron ore importer, wasn’t involved in the negotiations. This year it is represented at the talks by Baosteel.
However, the petty brinkmanship displayed by the government – threatening to block ore imports if the price was too high – does nothing to help the cause. All it achieves is making the mining companies wary about negotiating with China next time. For a start, Baosteel has to stand on its own two feet rather than rest on a government prop; this is the only way it will be respected as a genuine global player.
It could also be argued that high ore prices will actually do China’s steel industry a lot of good, pushing forward the consolidation of the sector as smaller players can’t live with the prices. Government measures aimed at controlling massive expansion in steel output have only been a qualified success – why not let the cold-hearted global pricing system play its role?
Above all, China has to accept the realities of the iron ore market. CVRD, Rio Tinto Group and BHP Billiton control 70% of the supply. They are able to boost prices because of a commodities boom that has in part been created by China’s runaway demand for raw materials. If Beijing wants to have more of a say in price negotiations, it has to start off playing by the same rules as everyone else.
There can be no special “China price”, it undermines the system as a whole. Beijing must earn the right to change the rules by coming up with sensible proposals, not resorting to brinkmanship.