World Business

Steelmakers have to raise prices on costs, group says

(Agencies)
Updated: 2010-05-10 14:22

Steelmakers, paying 90 percent more for iron ore, have to raise prices to pass on the higher raw material costs, the World Steel Association said.

The move by iron ore exporters this year to abandon a 40- year custom of setting annual prices in favor of quarterly contracts is a "very negative trend," Chairman Paolo Rocca said in an interview in Beijing. The change and the higher costs "will affect our customers," he said.

The association last month called on authorities globally to examine the iron ore market after Brazil's Vale SA won a 90 percent price increase from Japanese mills for quarterly contracts started April 1. Posco, Asia's third-biggest steelmaker, raised May prices for its products by as much as 25 percent because of escalating costs.

"We have no alternative but to transfer the increase in costs to the market," Rocca said yesterday. Quarterly ore pricing "will put our industry less competitive against the aluminum and raw material industries."

Vale, BHP Billiton Ltd and Rio Tinto Group account for about two thirds of globally traded iron ore market, worth $200 billion a year, according to an estimate by Credit Suisse Group. China last month said it was investigating the possibility that the three companies may be monopolizing supplies of the steelmaking ingredient.

Incur losses

Mills will incur losses if they are unable to pass on the higher costs, Zhu Jimin, chairman of China's Shougang Corp, said yesterday at the sixth China International Steel Congress. Prices of iron ore, trading near a two-year high, may continue to climb in the second and third quarters, said Deng Qilin, chairman of the China Iron & Steel Association.

Jiangsu Shagang Group Co, China's fifth-largest steelmaker, will consider reducing production should iron ore costs climb further, Chairman Shen Wenrong said yesterday.

Rio Tinto and BHP Billiton, the second and third-largest exporters of the material, are also proposing to combine their operations in Australia into a 50-50 joint venture to save at least $10 billion. The proposal is under review by competition authorities in Europe, Australia, South Korea and China.

The combination will "severely hamper our steel industry as this will create excess concentration," Rocca said.

The 180-member steel group includes 19 of the top 20 steelmakers and makes up 85 percent of global output.