NIPPON STEEL AND POSCO TO LINK UP ON PRICES
By Mariko Sanchanta in Tokyo and Song Jung-a in Seoul Tuesday, December 12, 2006 -->
-->
Nippon Steel and Posco, the world's second and third-largest steelmakers by output respectively, are set to jointly negotiate iron ore prices this year for the first time in an effort to boost their purchasing power.
The unprecedented deal between the Japanese and South Korean groups underlines the fact that Japan has ceded its negotiating power to China, now the world's biggest buyer of raw materials. China is set to lead the negotiations for benchmark prices for 2007.
Iron ore prices have risen substantially over the last few years amid tight supplies because of strong demand from China. Most analysts forecast a rise of at least 5 per cent and some even predict a double-digit increase for 2007.
Nippon Steel and Posco said they would jointly study the market conditions and co-operate closely in negotiating the annual iron ore talks, which are expected to start this month.
The deal is part of the expanding tie-up between the Korean and Japanese partners. Posco and Nippon Steel announced measures in October to spend about $460m to raise their stakes in each other by 2 per cent and to supply semi-finished products to each other at times of plant repairs.
Meanwhile, Nippon Steel is weighing the prospect of buying a stake in Baosteel, China's leading steelmaker, in response to an unprecedented wave of consolidation in the global steel industry.
Analysts say that a three-way alliance between Asia's steel giants – Nippon Steel, Baosteel and Posco – would cement their dominance in the Chinese market.
The Chinese took a leading role for the first time last year in the negotiations for iron ore prices. However, having called for a reduction in prices, they were eventually forced to accept an increase of 19 per cent