Nippon Steel, POSCO to Talk Jointly for Iron Ore Price

Nippon Steel and POSCO announced on Monday they agreed for joint negotiation for annual benchmark iron ore price for fiscal 2007. They start the first joint negotiation with CVRD, which agreed for the joint negotiation, on Friday in Seoul. The 2 major Asian steel makers seek stable procurement and stable market through the joint action including joint study of iron ore supply and demand as a part of strategic alliance. The new cooperation of the 2 major steels with total 90 million tonnes of annual iron ore purchase, which represents around 13% of world seaborne trade, could improve the bargaining power of steel makers against 3 major iron ore suppliers with 80% of world share.

Nippon Steel and POSCO will jointly negotiate with 3 major iron ore suppliers for annual benchmark iron ore purchase price. The 2 steels already informed the intention to Rio Tinto and BHP Billiton and try to negotiate jointly with the 2 major suppliers as well. The 2 steel also inform to and seek approval from antitrust agencies.

Iron ore negotiation is usually between each steel maker and each iron ore supplier and the first agreement between Japanese or European major steel and one of the major 3 iron ore suppliers becomes world benchmark. Even with joint negotiation, Nippon Steel and POSCO cannot purchase iron ore cheaper than other steels. However, the alliance with more than 10% of iron ore export from Brazil and over 20% from Australia could expand the negotiation power.

Iron ore price increased to 2.6 times during increases for 4 years in a row under tight supply due to Chinese rapid growth of steel demand. The price increase is attributed mainly to the higher demand but the price increases occurred when major 3 iron ore suppliers have 80% share of estimated 720 million tonnes of world seaborne trade in 2006.

Nippon Steel and POSCO agreed in October for expansion of the strategic alliance, mainly for slab supply each other during blast furnace relining. They said they consider additional cooperation ideas for raw materials procurement under the additional partnership including cross shareholding.