Steel industry: Rio Tinto and Nippon Iron reached a 33% reduction agreement

May 26, 2008, after more than half a year more than 2009 years of imports of iron ore association negotiations finally reached the first agreement.　　Rio Tinto's official website news: Nippon Steel and Rio Tinto have agreed on the 2009 iron ore negotiations, the specific 97 cents/dry metric tons of PB powder, di powder 97 cents/dry metric tons, PB 112 cents/dry metric tons, compared to 2008, respectively, down 32.95%;32.95%;44.47%.　　China has yet to complete negotiations. Comments: Rio Tinto's agreement with Nippon Steel was a 32.95% drop in the mine and a 44.47% drop in the ore, and the outcome of the negotiations was largely in line with our forecast for the two-quarter strategy of the industry. In accordance with previous negotiation practices, the first price agreed upon will then be accepted by the parties involved in the negotiations. Although in the 2008 negotiations, the Australian side did not accept Vale's first price, but we believe that in the current international steel production situation and iron ore spot market situation, the 33% decline is significantly lower than before, Japan, Korea and Europe, the decline in public opinion, for the ore producers have been more satisfactory results, BHP and Vale are expected to accept the first results. and CISA Although the previous tough stance required long association ore price reduction of more than 40%, but according to the previous negotiation process, CISA's attitude is mainly for the negotiation pressure and public opinion, it is difficult to determine the final outcome of the negotiations.　　The 33% per cent decline has not fully met China's requirements, but given the strong position of the three giants and the maintenance of the long-term pricing approach, we believe that Baosteel (Chinese negotiator) will be less likely to talk about a lower decline in subsequent negotiations, and is expected to accept the initial results. In accordance with the 32.95% per cent decline, the 2009 Rio di powder ore pob price of 56 U.S. dollars/ton, according to the latest Australian-China shipping costs, CIF price of about 69 U.S. dollars/ton, about 469 yuan. And the latest Australian di Powder spot car plate price in 450-470 yuan/wet ton, taking into account dry ton and wet ton of difference, long ore price is also slightly higher than the current spot mine price.　　And if the Brazilian powder ore also fell 32.95%, according to the current freight cost accounting, CIF price of about 556 yuan/dry ton, and the current Brazilian ore spot prices are basically equivalent. Therefore, we believe that a 33% per cent drop is a perfectly acceptable and satisfactory price for the ore producers. For domestic steel companies, considering the different factors such as wharf loading and unloading, tax and COA shipping cost, the price of 33% will still be higher than that of 50-100 yuan, but the fixed price and stable supply of the long Co ore can help large companies to arrange production and accounting cost.　　It is therefore expected that steel companies will also be happy to accept the price cut. As China has yet to complete its negotiations, it is hard to know whether the requirement of CISA's 2009 long co-mining contract date to January 1 will be agreed. Therefore, according to the usual calculation of the price of the new fiscal year starting from April 1, we assume that the long association is down 33%, and the sea freight in the two quarter rises.28-30%, the spot iron ore price drops 14%, the coke price drops 12%, the two quarter uses the long co-mining steel enterprise's ton steel cost will drop about 350 yuan, uses the spot mine Steel enterprise's ton steel cost to drop about 211 yuan. Domestic steel prices in the two quarter are expected to fall by about 5% in the first quarter, to rebar, for example, the price of tons of steel (excluding taxes) about the chain down about 167 yuan, significantly lower than the cost of decline, it is expected that the two-quarter steel margin will be the overall rebound, of which the long-term high proportion of steel enterprises margin to recover more space.