China's steelmakers are likely to reach a deal with Australian iron ore miners this month in price talks long deadlocked over the miners' demand for a freight premium, a senior Chinese steel official said on Monday.
Zhang Xiaogang, chairman of the China Iron and Steel Association, also indicated a softer stance toward the miners' demand for the freight-linked sweetener, as the world's largest steel industry faces a June 30 deadline when the Australians will become free to sell more ore into the pricier spot market.
I think both sides hope to complete the negotiations ahead of the deadline, Zhang told reporters on the sidelines of an industry conference.
A key sticking point in talks on one-year term contracts has been the insistence by Australian miners Rio Tinto Ltd/Plc and BHP Billiton Ltd/Plc on a premium to reflect cheaper freight rates compared with Brazil, another major supplier.
Brazilian miner Vale, the world's top iron ore producer, has already agreed on a price hike of 65 to 71 percent, as brisk demand from China's fast-growing economy fuels rising prices.
Chinese steel mills, represented by industry leader Baosteel at the talks, have resisted the premium and some top industry association officials have publicly rejected it.
But Zhang said on Monday: I think whether we reach an agreement with the Australian miners with a premium linked to freight rates depends on the negotiations between Baosteel and the miners ... It depends on what interests both sides are focusing on.
The looming June 30 deadline has increased the pressure on China's steel makers.
This has never really ever happened before, but the prices also have never been this high before and the Aussies have never before demanded this much, said iron ore mining analyst James Wilson of DJ Carmichael & Co in Perth, Australia.
He added, however, that there were limits on the bargaining power of the two Australian mining firms, the world's second- and third-largest iron ore producers.
After June 30, sure the producers have the option to sell into spot, but would you do that when you are exporting 300 million tonnes?
You can't just dump 300 million tonnes of Aussie ore into the spot market.
China is also seeking to bolster its direct access to iron ore supplies, investing in mining projects and companies both at home and abroad.
Shanxi Taigang Stainless Steel Co, China's largest stainless steel mill, said on Monday it would join its state-owned parent company to invest about 8.8 billion yuan ($1.27 billion) in developing a large iron mine in northern China's Shanxi province.
Last week, Andrew Forrest, the founder and chief executive of Australia's Fortescue Metals Group Ltd, said during a trip to China that he would welcome Chinese investment, amid speculation that his company is in talks with Baosteel.
(Additional reporting by James Regan in Sydney; Writing by Edmund Klamann; Editing by Anne Marie Roantree)
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