China steel mills seek long-term contracts

HONG KONG: Steel mills in China, the world’s top consumer and producer of the metal, are seeking long-term freight contracts for iron ore, adding to upward pressure on dry bulk rates that are already at 21-month highs. 

Shipping officials said large mills, such as Baosteel Group, were trying to secure freights for as long as 20 years, while they prepared to gobble up small and medium-sized mills in an industrial shake-up in the next few years. 

The move comes at a time when few large cape-sized vessels – used mostly for hauling iron ore and coal – were available partly due to serious port congestions in Australia and ahead of deliveries of new bulk carriers later in the year, they said. 

“Many are turning bullish in the longer term,” said an executive at one of the world’s top shipping companies. 

“Large Chinese steel mills are getting serious in securing transport for raw material for very long term ... Japanese and Korean mills are also talking about the next 20 years.” 

With the benchmark Baltic Dry Index up at 4,617, the highest since April 2005, some expected a new cape-sized vessel to fetch a record US$100mil before long, compared with the 2006 peak of US$92mil-$93mil and US$66mil-$67mil early in 2006. 

“It is still a very strong market,” said a senior official from one of the world’s top shipbrokers. “Demand for iron ore is still extremely strong.” 

The officials said the 9.5% rise in the 2007 benchmark iron ore prices, hammered out in December, confirmed strong demand for the raw material and its transportation, despite some slowdown in the expansion of steel output. 

“Iron ore imports will continue to rise, albeit at a slower rate. Many now see an annual growth of about 30 million tonnes in Chinese crude output,” said the first executive based in Tokyo. 

“Based on this, large Chinese mills are trying to secure 60% to 70% of the raw material supply via long term contracts. The rate is below 50% at some mills at present.” – Reuters

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