Steelmakers Fight Back Over Iron Ore Price Push (Update1)

April 2 (Bloomberg) -- Steelmakers are fighting back over attempts by the $200 billion iron ore mining industry to raise the cost of their main raw material, calling for regulators to investigate an “oligopoly” that inflates prices.

Mining of iron ore, essential for making steel, is dominated by Vale SA, Rio Tinto Group and BHP Billiton Ltd., which control about two-thirds of the trade. Brazil’s Vale, the largest supplier, set a precedent this week by breaking a 40- year custom of selling ore on a yearly contract at a fixed rate and won a 90 percent price increase from Japanese mills.

“There is an urgent need, now a very urgent need, for the competition authorities around the world to examine the market for iron ore and the market behavior of the three companies who dominate the business,” said Nicholas Walters, spokesman for the World Steel Association. The 180-member group includes 19 of the top 20 steelmakers and makes up 85 percent of global output.

Vale said yesterday it agreed with 97 percent of its global clients to adopt quarterly price contracts.

“There are key regulators involved in this around the world,” Walters said. “Their ears are very much open.”

Ongoing Talks

Talks, which started late last year between Chinese steelmakers and the three iron ore suppliers, are still on, He Wenbo, general manager of Baosteel Group Corp. that is representing Chinese steelmakers in the talks, said yesterday. “Negotiations with iron ore producers are very difficult. The annual pricing system is a better way to ensure a win-win solution for steelmakers and miners,” He said.

Still, the talks are “pointless” as the Chinese steelmakers have to accept the higher terms Vale agreed with Japan because they “have no option,” Shen Wenrong, chairman of the nation’s largest privately held steelmaker Jiangsu Shagang Group Co., said today in an interview.

Annual pricing crumbled last year as steelmakers in China failed to agree to a rate with lead negotiator Rio Tinto, followed by BHP’s move to cut the proportion of ore sold using the system in the second half. Increased rates for the material has created a domino effect, with steel producers passing higher costs to automakers to appliance manufacturers.

Lakshmi Mittal, chief executive officer of ArcelorMittal, said March 31 the world’s biggest steelmaker will raise costs for customers by $150 a metric ton this quarter, up 20 percent on current prices compiled by Metal Bulletin.

“We have an oligopoly controlling the market and they can therefore dictate prices,” Gordon Moffat, director-general of Eurofer, representing European steelmakers, said by phone. Cost increases “feed through into steel prices and into the finished product market -- cars, washing machines, consumer products.”

Market Investigation

The European Commission said it received a letter from Eurofer on March 30 seeking an investigation into the market.

“The Commission will make use of all relevant information in its possession to examine potential competition issues in the iron ore sector,” said a competition spokesman in Brussels who declined to be identified because of policy.

In Beijing, the China Iron and Steel Association will hold an emergency meeting with iron ore importers today to discuss the situation, said two people with knowledge of the talks who declined to be identified because the gathering is private.

China, the biggest buyer of the raw material, opposes the 90 percent price demand, the steel association said March 16. Secretary General Shan Shanghua couldn’t be reached for a comment at his office in Beijing.

Volkswagen, Fiat

The European Automobile Manufacturers’ Association, which represents companies including Volkswagen AG and Fiat SpA, said yesterday members wanted European Union regulators to “tackle distortive developments” caused by the changes.

BHP’s London-based spokesman Ruban Yogarajah declined to comment on steelmakers’ demands. Rio spokesman Nick Cobban didn’t immediately respond to a message seeking comment. A Vale spokeswoman who declined to be indentified also wouldn’t comment. The three companies control about two-thirds of the iron ore market, worth $200 billion a year, according to Credit Suisse Group AG.

--Helen Yuan. With assistance from John Martens in Brussels, Anna Stablum, Jesse Riseborough and Thomas Biesheuvel in London, and Lucia Kassai in Sao Paulo. Editors: Tony Barrett, Tan Hwee Ann, Indranil Ghosh.

To contact the editor responsible for this story Andrew Hobbs at ahobbs4@bloomberg.net.