Chinese steel makers are in a weaker position in the upcoming annual talks over ore contract price due to some shortcomings.
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Although some Chinese industry officials insist that the contract price should soon ease after a steep rise over the past years, most analysts and research institutions expect the annual benchmark to rise for at least another year given the tight supply.
China's ore trader Sinosteel Corp forecasts a 25 percent rise. Morgan Stanley and Merrill Lynch tip an increase of 30 percent, with Merrill even saying a 50 percent jump is "certainly not unrealistic."
The top three ore" target="_blank">iron ore miners, CVRD of Brazil and Australia's BHP Billiton and Rio Tinto, hold talks with steel makers annually. The price for the following year is settled when the first ore" target="_blank">iron ore producer settles with the first steel mill. The annual price settlements apply from April 1 to March 31, categorized as a Japanese fiscal year.
The new round of annual talks kicks off next month. The contract had risen by 71.5, 19 and 9.5 percent respectively over the past three years, adding pressure on China's steel industry, the world's largest.
Although global mining giants have announced plans to expand production, the capacity could be largely curbed by a shortage in port and other infrastructure facilities. A Merrill Lynch research report said the global market will remain substantially under-supplied until at least 2011.
The tightness had been reflected by the surging spot prices, which also add to negotiation strength for Brazilian and Australian miners.
India's ore" target="_blank">iron ore prices have more than doubled over the past year, after its government raised export tariffs to ensure domestic supply. India is another major ore producer which typically does business in the spot market.
