Metals News
UPDATE 1-Baosteel Importing Iron Ore on Temporary Price Basis
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May 5,2010

BEIJING, May 5 -- Baoshan Iron & Steel Co (600019.SS: Quote), China's largest listed steelmaker, is importing iron ore from top global miners on a temporary price basis, Ma Guoqiang, the listed unit's general manager, said on Wednesday.

"Because the 2010 iron ore price negotiations are still ongoing, steel mills around the world are now using a temporary pricing mechanism for imported iron ore," he said on a webcast conference call.

"Recently, this pricing mechanism has seen changes. If it disappears altogether, it will have a definite impact on the company's production, operations and customers. To handle these changes, the company is conducting research into the impact of different pricing mechanisms and how to respond to them."

Although China's market leader, Baosteel accounts for less than 10 percent of steel production in China, which produced almost half of the world's steel last year.

China increasingly depends on imported iron ore to feed its steel mills. The top suppliers are the world's big three producers, Vale (VALE5.SA: Quote), Rio Tinto (RIO.AX: Quote) and BHP Billiton (BHP.AX: Quote).

Until this year they sold ore on an annual benchmark price, a system which has collapsed and given way to quarterly pricing.

"The benchmark mechanism has been good for decision making, especially for setting product prices," Ma said. "The company's competitiveness is not determined by the benchmark. If prices are adjusted quarterly, we can also maintain competitiveness by shortening the period when we make (price) decisions."

Responding to shareholder concerns about the high price of ore, he said he understood their worries, but ore prices were just one of many factors influencing Baosteel's profits.

"Baosteel has used imported iron ore from when it was first built. If you compare us to those steel firms using non-imported ore, we have always had profit advantages - that can be proven by our profits in the past."

He noted that ore prices had recently started to fall.

One shareholder on the call complained about the company's recent share price slump.

"The price has fallen so much I want to jump out of the window," the shareholder said.

Ma said the worst was over for China's steel sector, although demand from carmakers had slowed recently following a period of excessive growth.

"Looking at it from macroeconomics and downstream demand, the worst period should already be over," he said.

Ma also said Baosteel Group was waiting for the right time to unify its listed units into one single listed company and to invest overseas, fending off a suggestion that it had been slow to do so.

"Baosteel invested in iron ore in 2001-2002 during the downturn and locked in 16 million tonnes of supply. I think the right time needs to be chosen to invest and care needs to be taken in making decisions while ore prices are at their peak."



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