By Bloomberg News
Dec. 22 (Bloomberg) -- The global steel industry will suffer more losses should iron ore prices increase next year, Baoshan Iron & Steel Co., China’s largest steelmaker, said.
“There aren’t many profitable steelmakers at present,” Shanghai-based Baoshan told the official Xinhua News Agency in an interview posted on the company’s Web site. “A further rise in iron ore prices would cause more losses.”
Rising steel demand and prices in China, the largest producer, led Macquarie Securities Group to predict a 30 percent gain in iron ore prices next year. Baosteel’s comments underscore the differences to be bridged in annual price talks between steelmakers and the world’s three biggest iron ore suppliers BHP Billiton Ltd., Rio Tinto Group and Vale SA.
“There’s room for prices of raw materials to rise only when mills can pass on the cost pressures,” Baosteel said in the Xinhua interview. “The foundation of Chinese steelmakers’ profitability is not solid as the demand is largely created by the government’s stimulus policy amid a global crisis.”
China’s $586 billion stimulus spending has boosted steel demand from automakers, home-appliance manufacturers and builders. That’s fueled record imports of iron ore, used to make steel, this year. Baoshan Steel raised benchmark steel prices by 8 percent for January delivery, the first increase since September, on Dec. 10.
Ship Plates
“Demand from the auto and appliance industries has been strong since the second quarter,” Baoshan Steel said in the Xinhua story. “We can’t meet our clients’ needs even at full capacity.”
Still, the improving demand and prices for products needed by makers of cars and appliances have been offset by declines in other products, Baoshan Steel said. Ship plates are lossmaking, it said.
Baoshan Steel’s comments come as analysts including Deutsche Bank AG forecasts rising steel demand and as cash prices for iron soared. Steel price increases by Baoshan Steel and rivals signal demand growth in China will outpace supply expansion in 2010, Deutsche Bank said.
Weekly cash prices for iron ore imported by China from India gained 5.2 percent, the biggest gain in six straight weeks, to a record $111.5 a metric ton last week, according to Metal Bulletin. The cash price for Australian ore also reached a record $107.4 a ton as of Dec. 18, according to the Steel Index.
“Cash iron ore prices rose on bets that steel prices will rise over the long term,” said Zhu Limin, an analyst with Shanghai Securities Co.
Benchmark Australian iron ore prices were settled at about $61 a ton, excluding freight charges, this year. Shipping the ore to China’s Qingdao port from Western Australia would cost about $11.62 a ton, according to the Baltic Dry Index.
--Helen Yuan. Editors: Tan Hwee Ann, Jacob Lloyd-Smith.
To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net
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