Steelmaker sells iron ore to China

Steelmaker sells iron ore to China

CHINA continues to chip away at the Australian iron ore duopoly, with two Chinese steel producers signing separate offtake contracts with the BHP Billiton offshoot and steel manufacturer, OneSteel.

Taking advantage of high steel prices and a reconfigured mill at Whyalla, OneSteel has signed 10-year hematite supply deals with Shanzi Haixin Iron & Steel Group for a total of 6 million tonnes, and Hebei Jinzi Iron & Steel for 5 million tonnes.

OneSteel corporate development general manager Mark Gell said the strong prices were an “extra incentive at the moment to ship all of the iron ore”, but this would not generate long-term value for the company.

“We have inquiries from Asian steel mills on a weekly basis. It just so happens that we have come across a sweet spot in iron ore pricing,” Mr Gell said.

The new deals take OneSteel’s total iron ore supply contracts with Chinese steel mills to 17 million tonnes, as it enters a lucrative market dominated by Rio Tinto, BHP and Brazil’s CVRD. The three control 75 per cent of the seaborne iron ore trade and negotiate world benchmark prices.

The supply contract means a new market for the desperate Chinese players, as they try and rein in five consecutive years of iron ore price rises.

BHP Billiton acted as a marketing agent for the OneSteel contracts, and it does not appear that the major players will feel an imminent threat to their stranglehold on the global iron ore market.

Deutsche Bank expects Chinese crude steel production to grow by 17 per cent to 495 million tonnes this year, and 13 per cent in 2008. It added that Chinese imports of lump iron ore and fines would grow 14 per cent in 2008 to 458 million tonnes.

Chinese players have funded an emerging line of iron ore hopefuls, including Gindalbie Metals, Cape Lambert and Australasian Resources, in the hope of receiving offtake.

Analysts expect another 10 per cent rise for iron ore prices next year in a tight supply market.

The new OneSteel contracts still leave it with a further 13 million tonnes of hematite ore, from its South Middleback Ranges project, looking for a home. South Middleback, 100km southeast of its Whyalla operations, has a 40 million tonne hematite resource which covers a magnetite deposit. Magnetite is usually a lower quality ore than hematite but can be upgraded into pellets for steel making.

A $385 million refurbishment of its Whyalla blast furnaces in 2004, dubbed Project Magnet, enables OneSteel to change its product mix to magnetite. Using magnetite allows OneSteel to extend its Whyalla steel-making operations for a further seven years, whereas hematite would take it to 2020 “at a stretch”, according to Mr Gell.

There will be no sweetheart deals in terms of pricing with the new contracts. The price will be set by world benchmark methods annually.

OneSteel shares gained 23c to $6.51.

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