Shagang May Delay Ore Purchases If Steel Output Is Cut

Oct 17, 2011 (Bloomberg) -- Jiangsu Shagang Group Co., China’s biggest private steelmaker, may delay iron ore purchases should steel output need to be cut, Vice President Shen Wenming said.

“We’re considering this,” Shen said today in a telephone interview. “The steel market is very bad. Should we cut production, we will delay ore purchases.”

Chinese steel prices may extend their decline after slumping to the lowest in 10 months, forcing domestic producers to bring forward maintenance or cut output, analysts including Hu Yanping from Custeel.com said. Chinese steelmakers, the world’s biggest consumers of iron ore, may renegotiate fourth- quarter raw material prices because spot rates have fallen below contract levels, Maanshan Iron & Steel Co. and rival mills said.

“We’ve held talks with the top three ore suppliers on quarterly pricing,” Shen said, “We told them that the index pricing is unreasonable. It always lags behind the market when the market falls, and it always rises faster than actual demand when the market is up.”

Rio Tinto Group, BHP Billiton Ltd. (BHP) and Vale SA (VALE5), the world’s biggest iron ore suppliers, last year abandoned a 40-year custom of setting prices annually in favor of quarterly contracts as spot prices rose. Miners currently offer various pricing options including quarterly, monthly and weekly pricing as well as auctions to mills. About 60 percent of Shagang’s iron ore contracts are based on quarterly pricing, which also follow a flexible system, Shen said.

The spot price of iron-ore fines with 62 percent iron content delivered to the Chinese port of Tianjin fell 13 percent to $157.5 a ton as of Oct. 14 from $181 on Sept. 7, a four-month high, according to the Steel Index. Fourth-quarter contract prices for the fines from Australia are at about $175 a ton, Umetal.com analyst Xu Guangjian said.