By Unknown , 2010-03-22 12:00:00
Reuters reported that China steel mills have been asked to accept a doubling of iron ore prices this year by their top supplier, Brazil Vale and are also facing excessive steel output.
Mr Luo Bingsheng, vice chairman of the China Iron and Steel Association said "As everybody knows, Vale has proposed a price increase of 90% a price increase of 100%.”
He said that the increase in international iron ore prices will also have an impact on domestic iron ore prices and put huge pressure on domestic steelmakers."
He added that China's steel output in the first two months of this year far exceeded demand and exports may drop further, while a rise in inventories remained a risk to the sector.
Mr Luo Bingsheng said "We shouldn't be overly optimistic about the market. He said that a gloomy outlook for Chinese steel mills in 2010. They have yet to fix term prices for iron ore with Vale and the other two big suppliers, Rio Tinto and BHP Billiton having failed to win the deep price cut they were hoping for in 2009.
Mr Luo said surging levels of fixed-asset investment in China would still have a positive impact on steel demand in 2010, but overcapacity was likely to restrict profit and a possible fall in exports would limit growth.
He said that "Looking at the market as a whole, Chinese steel mills are still producing too much."
Mr Luo said 49 countries had initiated protectionist measures against Chinese steel. The drop in exports had exacerbated the problem of domestic supply outstripping demand. He said that "Everybody knows that iron ore costs are going to rise and this is pushing up steel prices, as we've seen in the last week."
The CISA previously said the raw material price increases were far higher than the subsequent steel price rises because of overcapacity. Conversely, the sector thrived last year because iron ore costs fell far quicker in the domestic market.
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