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Plea for ore delay due to low demand
Last Updated(Beijing Time):2008-10-10 10:23

Australian miner Mount Gibson Iron Ltd said some Chinese steel makers have asked it to delay ore shipments, a further sign of weaker demand that will add pressure on mining giants in the upcoming annual price negotiations.

It has received requests from a number of customers to postpone ore deliveries scheduled for the second quarter of the financial year, Gibson said yesterday. Australia's fiscal year starts on July 1.

"Customer and iron ore sector analysis indicates a slowdown in demand for iron ore in China due to current economic uncertainties and the tightening of credit facilities, leading to reductions in steel production and the significant build-up of iron ore stockpiles at Chinese ports," Gibson said. The requests caused its shares to tumble by as much as 32 percent in Australia.

Rio Tinto, a bigger Australian miner, said it will continue normal shipments while BHP Billiton, another giant, declined to comment.

Due to weaker steel demand and the Olympics-driven slowdown in production, domestic ore prices have dropped by almost 50 percent over the past three to six months, with Indian imports including insurance and freight costs down from a high of over US$200 a ton in early April to existing levels of US$100 to US$110, Morgan Stanley said this week.

The timing is rather unfortunate for Gibson as the start of a new round of talks on prices for annual ore contracts between mills and the world's top three miners, Brazil's Vale, BHP and Rio, is about one month away.

Vale, which offered lower prices than Australian rivals for 2008/2009, has been positioning itself by asking China mills to pay more for already agreed contracts to match what it charges mills in Europe, even at a time of slower demand.

A vice president from Vale reportedly will fly to China next week to push mills for the rise, although Chinese industry and market analysts have played down the request.

Morgan Stanley said it has downgraded ore price forecast for 2009/2010 contracts from a previous projection of a 30-percent increase to a 5-percent rise for Brazilian ore and a 5-percent decline for Australian ore.

It said Chinese mills will ask for a 15-30 percent price fall while the miners may seek a rise of the same size, which suggests the talks would be the most drawn-out.

Source:Shanghai Daily 
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