Japan's steel mills have to ask for a price cut of at least 40% in the annual iron ore benchmark talks to be able to continue selling into a weakened downstream, said market sources."Japan's steel users are facing such bad demand that they need to cut prices by at least 20-30% for the next fiscal year [starting April 1].
Therefore, steel mills need to seek a cut of at least 40% [off iron ore prices] to be able to meet their clients' pricing requests," said UBS Securities analyst Atsushi Yamaguchi.
UBS is forecasting a benchmark iron ore price fall of about 40%. Officials at Japan's major steel mills, including top mill Nippon Steel, confirmed that 2009 benchmark talks have begun with iron ore suppliers but declined to comment, citing company policy."It's an open secret that steel demand has fallen and the market is much lower than it was this time last year. Japan's mills are definitely looking at a price decrease. The only question is how much," said a mill source.
The only wild card is the Chinese steel market, which is showing signs of recovery, and which supported a spot iron ore market rebound last November, said market sources.
If the spot market continues to improve significantly, it could erode the size of the benchmark price cut settled in the end, they said.
Last year, both Rio Tinto and BHP Billiton settled with Asian mills at 144.66 cents per dry metric tonne unit for fines, and 201.69 cents per dmtu for lump, up 80% and 97% year-on-year. Vale settled Carajas fines prices at 125.17 cents per dmtu fob, up 71%, and Southern System fines prices at 118.98 cents per dmtu fob, up 65%.
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