Chinese steelmakers have decided not to import Brazilian iron ore in the near term after Vale asked for a price hike.
The China Iron and Steel Association (CISA) says Vale’s price demands are unreasonable. Several Chinese steel mills, including Baosteel and Wuhan Iron & Steel signed contracts early this week with domestic iron ore miners to use their products as a substitute for Brazilian iron ore.
Last week CISA wrote a letter to Vale, asking the world’s largest iron ore miner not raise the price of its iron ore by an additional 12 to 13%. In February Vale and several European steel companies agreed on a 65% price hike. Asian customers pay 11% to 11.5% less than European clients, according to Vale.
The Brazilian miner is trying to match the iron prices charged by Rio Tinto Group and BHP Billiton. Rio and BHP secured a price increase of as much as 97% this year, compared with Vale’s 71% increase.
Chen Xianwen, head of market research at CISA, told Bloomberg that Chinese steelmakers have rejected the price hike because of a slowdown in demand from the auto industry and construction. “It was agreed in the meeting that using domestic iron ore fines is absolutely feasible,” Chen said.
Iron ore prices have already significantly increased this year. The CISA says costs for China large and medium-size iron and steel manufacturers rose by nearly 58% in the first half of this year.
Chen told Bloomberg that Vale is now only shipping iron ore fines with a 62% iron ore content to China, suspending the shipment of higher grades that have 64 and 65% content.