Domestic

Baosteel uses temporary pricing to import ore

By Zhang Qi (China Daily)
Updated: 2010-05-06 10:05

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Big steelmaker studying impact of different costing mechanisms

Beijing - Baosteel, China's largest steelmaker, also the chief negotiator of the country's iron ore talks, is importing iron ore from top global miners on a temporary price basis.

Baosteel uses temporary pricing to import ore

Ma Guoqiang, general manager of Baoshan Iron & Steel, said car production is slowing down. [JIN RONG / FOR CHINA DAILY]

"Now the 2010 iron ore price talks are still going on, and steel mills around the world are importing iron ore at temporary prices," said Ma Guoqiang, general manager of Baoshan Iron & Steel, the listed unit of Baosteel, during an online earnings briefing on Wednesday.

The company is also studying the impact of different pricing mechanisms and how to respond to them, said Ma.

"The 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," said Ma.

China increasingly depends on imported iron ore to feed its steel mills. The top suppliers are the world's big three producers, Vale, Rio Tinto and BHP Billiton.

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

China's steel lobby, the China Iron and Steel Association acknowledged that Chinese steel mills have signed individual deals with global miners.

Previously, the steel lobby didn't allow Chinese steel makers to sign contracts until a national benchmark price came out.

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Basoteel posted 3.93 billion yuan profit in the first quarter, over 40 times more than the 89 million yuan that it earned in the same period last year.

Baosteel, which produces 50 percent of all auto-sheeting for the domestic market, is running at full capacity as supply falls short of demand.

Although the company's auto sector orders are full, he said steel demand has slowed recently after excessive growth.

Ma said car production in China is slowing down after a 50 percent gain in the first quarter.

China's first-quarter crude steel output rose 24.5 percent from a year earlier.

As prices of iron ore soar sharply, the company is trying to make long-term contracts and seeking resources investments to secure raw material supplies.