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Rescue fears trigger Greek bond sell-off

ByDavid Oakley in London and Kerin Hope in Athens

Published: March 30 2010 19:01

Greek sovereign bonds suffered a sharp sell-off on Tuesday as investor concerns over the country’s financial health flared up again.

The price of seven-year bonds issued only on Monday tumbled as a new issue of 12-year paper struggled to find buyers.

”Greece still has big problems,” said a senior banker. “The Greek bond syndication was very disappointing. Investors still do not have faith in Greece and are only prepared to buy the bonds for higher yields.”

In spite of mooted support from the European Union and the International Monetary Fund, investors remain concerned that Germany could refuse to provide financial aid if the Greeks fail to meet their deficit reduction targets later in the year.

Greece must raise €35bn ($47bn) of debt this year to avoid a bail-out. It has sold €18bn so far.

Yields on Monday’s €5bn syndicated bond rose more than a quarter of a percentage point to 6.30 per cent, a big sell-off for a new issue. Yields have an inverse relation with prices. The bond was trading 3.5 percentage points over German Bunds which is close to a record premium for Greek bonds.

Greece’s unexpected sale of 12-year bonds – a re-opening of an earlier issue due to mature in 2022 - raised only €390m, less than the sale’s €1bn upper limit.

Debt managers in Athens said a yield ceiling of 6 per cent was set in the auction of the 12-year bond.
Investors said market sentiment had been hurt by the fact the seven-year bond attracted a much smaller amount of orders than the country’s two other new bonds this year.

Sentiment was also hit as foreign funds appeared to be less keen on buying Greek bonds than previously.
International investors made up 57 per cent of the seven-year deal compared with 61 per cent and 77 per cent for the previous five- and 10-year syndications which were priced in January and March.

Greek traders and analysts shrugged off the new bond’s weak performance, pointing out that trading was thin ahead of the Easter break.

Platon Monokroussos, senior economist at EFG Eurobank, said, “The seven-year bond was not a tremendous success but we still think there’s still a high probability that spreads will gradually de-escalate.”

Greek analysts are optimistic that first-quarter budget figures, due to be released next month will show the government is on track to meet its target of cutting the deficit by four percentage points of gross domestic product this year.

Petros Christodoulou, head of the Public Debt Management Agency, said,”Having pre-funded the April borrowing requirement, we have a bit of time to wait for positive news on the stability measures to trickle through.”

Copyright The Financial Times Limited 2010.

March 31, 2010

I.H.T. Op-Ed Contributor

Soothing China-U.S. Tensions

By CHARLES A. KUPCHAN

A worrisome confrontation is escalating between the United States and China. Washington charges that Beijing is unfairly bolstering Chinese exports by keeping its currency artificially low and is troubled by Beijing’s dispute with Google over Internet censorship. Beijing is telling the United States to mind its own business and is chafing over U.S. arms sales to Taiwan and President Obama’s recent meeting with the Dalai Lama.

With the anger on both sides intensifying, American and Chinese leaders urgently need to take steps to defuse the situation. Otherwise, China’s continuing rise may soon result in a classic rivalry between reigning hegemon and ascending challenger.

I have just returned to Washington from Beijing; the mutual antagonism is palpable in both capitals. Amid a stubborn slump in U.S. employment, Washington is awash with disgruntlement over the trade imbalance with China. In one of the few remnants of bipartisanship, Democrats and Republicans alike are calling for retaliation against China’s alleged manipulation of its currency. Talk in Washington is that Beijing’s once-cautious foreign policy has suddenly become assertive and caustic.

Beijing is abuzz over the accusations from Washington. Chinese leaders contend that Americans are blaming China for economic problems that are homegrown. In a recent press conference, Prime Minister Wen Jiabao denied that the Chinese currency is undervalued and asserted that responsibility for “serious disruptions” to the China-U.S. relationship “does not lie with the Chinese side but the U.S. side.” Angry calls for the country’s leadership to stand up to American intimidation dominate the Chinese press and blogosphere.

Despite the rising rhetoric, the current discord is not about a fundamental clash of national interest. Rather, it is the product of domestic pressures on both sides that are cornering their governments into a counterproductive game of tit for tat. There is a win-win way out, but American and Chinese politicians both need to see through the haze of mutual recrimination to recognize it.

The declarations of Chinese leaders aside, it is in China’s interest to allow for a significant appreciation of the yuan. Doing so would allow the government to address its most pressing political challenge: reducing income inequality and raising the quality of life for millions of Chinese. The best way to achieve this goal is to move the Chinese economy away from export-led growth, huge dollar reserves, and high savings toward domestic investment and the stimulation of domestic consumption. An appreciated yuan would further these ends by increasing the purchasing power of China’s consumers and reallocating wealth away from large, often state-owned exporters to the broader citizenry. China — along with the rest of the world — would benefit from this re-balancing and the global stimulus it would produce.

Beijing is not pursuing this course of action in part because of lobbying from powerful exporters. But at least as important in prompting Beijing’s intransigence is pressure from Washington. Amid the blustery nationalism that is now a staple of Chinese politics, the more intensely the United States presses Beijing to revalue its currency, the more firmly Chinese leaders dig in their heels.

Washington is right to want a revaluation of the yuan, but wrong to pursue that objective through bullying Beijing. The problem is that President Obama — just like his counterparts in Beijing — is under pressure to get tough. Labor unions are pressing him for relief from Chinese imports. And standing up to Beijing can help Mr. Obama counter charges that he is not sufficiently firm in dealing with illiberal regimes.

So how to get out of this box? Washington and Beijing should engage in mutual accommodation, each taking actions that will give the other more domestic room for maneuver. Washington could send a benign signal by loosening the technology export controls that have long rankled Beijing. The United States could propose joint research and development programs on green technology and resource management. And Washington should cease its public pestering of China about the value of the yuan, instead working through the cover of the G-20 and deliberately giving Chinese leaders the wider berth they need to act.

Beijing can reciprocate by supporting U.S. efforts to tighten sanctions against Iran if Tehran continues to refuse compromise on its nuclear program. Beijing’s cooperation would win China a significant measure of good will in Washington. So would Beijing’s willingness to ease its clamp down on Internet freedom. If a mending of fences results from these acts of mutual accommodation, Beijing would be in a much better position to revalue the yuan, a move that would further dissipate frictions.

The United States and China certainly have their differences over Taiwan, human rights and other issues. But at least for now, the two countries are not on a geopolitical collision course. They are, however, fast traveling down a route that has the potential to turn differences of opinion into a dangerous rivalry. Both powers must now firmly apply the brakes.

Charles A. Kupchan is a professor of international affairs at Georgetown University and a senior fellow at the Council on Foreign Relations. He is the author of “How Enemies Become Friends.”

China: To the money born

By FT Reporters

Published: March 29 2010 22:37

Children of the revolution: youths featured in a 1970s propaganda poster. More recently, China’s ‘princelings’ have been at the vanguard of the financial industry

New Horizon Capital is one of the most influential and successful participants in China’s fledgling private equity industry. It has billions of dollars under management and a stable of investors that includes Deutsche Bank, JPMorgan Chase, UBS and Temasek, Singapore’s sovereign wealth fund. But you would not guess any of that from its central Beijing headquarters.

The company has no nameplate in the lobby of the Golden Treasure Tower, a nondescript building near the Forbidden City, the traditional seat of imperial power. Its simple 12th floor offices are identified only by a small sign inside the door that reads, in Chinese, “New Horizon Growth Investment Advisory Limited”.

The company does not need flashy suites as it has one of the most valuable assets in China. He is Winston Wen, an MBA from Northwestern University’s Kellogg business school in the US who keeps a low profile and bears a striking resemblance to his father – Wen Jiabao, premier of the People’s Republic of China.

The younger Mr Wen and New Horizon are in the vanguard of a more aggressive generation of taizidang (“princelings”) – offspring of senior Communist party officials – who dominate the burgeoning home-grown private equity industry, where huge profits are to be made from restructuring state assets and financing private companies.

In 2009 private equity deals in China totalled $3.6bn, accounting for one-third of all such transactions in the Asia-Pacific region, according to Thomson Reuters. But industry participants say the potential market is far larger.

According to those working in the sector, the princelings’ ascendance is squeezing out less well connected operators, including foreign firms, which might have important consequences for two reasons. First, private equity could play an important role in modernising the economy, channelling funds to promising but capital-starved companies – but those benefits will be felt only if the industry is run in a professional and competitive manner.

Second, some in the political establishment fear that princeling dominance of private equity could exacerbate public perception of nepotism and misrule at the top of the Communist party. In an opaque authoritarian system lacking the popular legitimacy of a democracy, such fears are hard to dismiss. A recent online opinion poll by the People’s Daily, the party’s official mouthpiece, found that 91 per cent of respondents believe all rich families have political backgrounds.

In an interview with the same newspaper, the former auditor-general said the fast-growing wealth of officials’ children and relatives “is what the public is most dissatisfied about”. Li Jinhua, widely respected as the senior graft-busting official between 1998 and 2008, told the paper this month: “From the numerous cases currently coming to light, we can see that many corruption problems are transacted through sons and daughters.”

Many of the elite’s children are western educated and, over the past 15 years, dozens have been recruited by western companies and banks hoping to secure an entry into the Chinese market and win mandates to take state-owned companies public in New York or Hong Kong. As most foreign investors know, employing the relative of a senior party leader as an adviser or employee can help cut through bureaucratic obstruction and resistance from local interest groups.

But today those institutions and investors are scrambling to invest in the private equity funds of princelings who would once have been on their payroll. “In the past, the best option for these people with ‘background’ was to go to the high-paying western investment banks but now the economic strength has shifted,” says one person in the private equity industry, asking not to be named because of the sensitivity of the topic. “Now they’re saying to the foreigners, ‘Hey, I’m in the driving seat, I have all the deals – so you give me your money and I’ll invest it myself and take a big cut’.”

Prominent private equity princelings include George Li, a former banker at Merrill Lynch and UBS with an MBA from the Sloan School of Management at the Massachusetts Institute of Technology, whose father, Li Ruihuan, was one of the country’s senior leaders from the late 1980s until 2003. Another son, Jeffrey Li, recently resigned as China head of Novartis, the pharmaceuticals group, to go into private equity, according to people familiar with the matter.

Wilson Feng, who bankers and private equity investors say is the son-in-law of Wu Bangguo – officially second in the party hierarchy – left Merrill Lynch two years ago to launch a fund with ties to the state-owned nuclear energy conglomerate, according to media reports and people familiar with the matter. Mr Feng was key to securing Merrill’s mandate to take Industrial and Commercial Bank of China public in Hong Kong in 2006 in the biggest initial public offering in history.

Other private equity princelings include Li Tong, daughter of Li Changchun, the member of the nine-strong ruling Politburo standing committee in charge of propaganda and the media. Ms Li now runs a private equity fund at Hong Kong-based Bank of China International focusing on the media sector, according to three people familiar with the matter. Stanford-educated Jeffrey Zeng, son of Zeng Peiyan, former vice-premier, has also set up a fund affiliated with state-owned financial institutions.

“This is turning into a crucial moment for the financial industry in China,” says the head of a foreign bank in Beijing.“But we are very worried that foreigners and other skilled Chinese are being shut out by a string of princelings and other very well-connected people trying to dominate [the private equity] market.”

The government has been encouraging the creation of a home-grown private equity industry in recent years but approvals to set up funds are tightly controlled and investments often require them from numerous state agencies. Having the relative of a top leader in its management team can help fledgling funds overcome these hurdles.

Princelings have long been suspected of leveraging parental political power for personal gain; the topic was a source of public anger during the 1989 Tiananmen Square student protests that ended in a bloody military crackdown. But Beijing political insiders say two men led the way for the ambitious new generation, fostering the modern perception of close ties between money and political power.

Levin Zhu, son of former premier Zhu Rongji, and Jiang Mianheng, son of former president Jiang Zemin, are familiar to many foreign investors, having worked for or set up joint ventures with several large western companies. Their fathers helped push through some of the past two decades’ most important market-based reforms, including World Trade Organisation membership.

Mr Zhu has a PhD in meteorology from the University of Wisconsin-Madison. Following a stint at Credit Suisse First Boston in New York, he returned to China in the late 1990s and orchestrated a virtual take­over of China International Capital Corp, a joint venture in which Morgan Stanley holds about 34 per cent.

Mr Jiang boasts a PhD in electrical engineering from Drexel University in Philadelphia. Returning to Shanghai in the early 1990s he was courted by foreign investors who saw him as the country’s most valuable joint venture partner. Today, he controls Shanghai Alliance Investment Limited, a government investment company operating much like a private equity firm.

With their parents both out of formal office since 2003, the influence of Mr Jiang and Mr Zhu has waned. But as children of the “third generation” of technocratic leaders, they are seen to have paved the way for the current wave of princelings. “Those two really helped create the image of Red families running this country for their own benefit,” according to one person who deals closely with many princeling families. “Their actions have given all the younger generation a green light to go out and aggressively build their own buckets of gold, no matter what the consequences for the image of the party or the leadership.”

By squeezing out foreigners and other competition, dominance of the private equity sector by princelings will bring few benefits in terms of management skills or financial discipline, some analysts and industry participants say.

“Private equity is a very good area for princelings because with these sorts of connections you can get into companies ahead of their IPOs and make a lot of money in a short space of time,” says Professor Victor Shih of Northwestern University. “It is an easy way to make money because everyone will be willing to back them because of their connections. Everyone will do it willingly in order to potentially get favours from senior leaders in return.”

People close to several private equity princelings say they often feel they are victims of reverse discrimination; that no matter how smart or hard-working they are, the public will assume their success relies purely on nepotism. However, some important operators in the Chinese sector, while benefiting from family links, are seen in the industry as well qualified in their own right. One such person is Liu Lefei, son of Liu Yunshan, head of the party’s central propaganda department. The younger Mr Liu previously managed Rmb1,000bn ($147bn; €109bn; £98bn) as chief investment officer for state-owned China Life Insurance and has taken over the reins of the state-controlled Citic private equity fund.

The Financial Times was unable to reach some of the individuals named in this article or their companies, and those who were contacted refused to comment.

Because it can prompt public dissatisfaction and accusations of nepotism, information about the private lives and business dealings of leaders and their offspring often falls within the scope of vague and wide-ranging state secrecy laws, regularly used to silence critics of the regime. Even the existence of leaders’ relatives is usually a well-guarded secret. Internet searches on princelings and their activities are usually blocked in China.

Most live in luxurious gated communities around Beijing and maintain holiday homes around the country and the world. Spouses are almost never seen in public. Younger, less discreet, princelings can be identified in Beijing by their luxury sports cars with military or paramilitary licence plates, which allow them to ignore traffic regulations and avoid being stopped by the police.

But the princelings themselves face a dilemma. If their business activities are too successful or high profile they may damage the political fortunes of their powerful parents, even without specific allegations of inappropriate dealings or special privileges.

Some analysts and industry insiders foresee a situation where the scions of powerful political families use the private equity industry to carve up parts of the economy at the expense not only of foreign investors but also of the older generations of princelings with direct bloodlines to China’s revolutionary Communist party founders.

But the constant jockeying for position within the party behind closed doors in Beijing is set to intensify as the next big leadership transition approaches in 2012. Some analysts say the private equity activities of the more aggressive younger princelings could be used by political enemies as a weapon against their parents.

In the case of Winston Wen, “You have to wonder if this will leave Wen [Jiabao] open to some sort of blackmail if his son has such a high-profile position in the financial sector, where all sorts of favours might be offered”, says Mr Shih. “What if someone gets some dirt on Winston Wen?”

PRIVATE EQUITY PRINCELINGS

‘Red-blooded ‘veterans versus ruthless arrivistes

The term “princeling” was coined to refer specifically to the children of senior leaders of China’s Communist revolution – the veterans who joined Mao Zedong on the fabled Long March of the mid-1930s or were members of the inner circle at the time of the 1949 Communist victory.
Today it is used more broadly to include the offspring of later generations of technocratic leaders – but a distinction remains between them and the truly “Red-blooded” revolutionary families.

Beijing political insiders say that distinction is made sharper today by the aggressive business dealings of the newer generation of princelings and their moves into the hot new field of private equity.

None of the most prominent players in the burgeoning domestic private equity sector is from the revolutionary dynasties that include the offspring of such Communist icons as Deng Xiaoping, the late paramount leader, and the children of the “eight immortal” party elders who supported his rule through the 1980s and 1990s.

“The old revolutionary royalty, like the family of Deng Xiaoping, are still untouchable and they regard this country as belonging to them in a very real sense,” says one such insider. “They see the newer generation of princelings as more ruthless, and some even go as far as saying that when the eunuchs become powerful it means the end of the dynasty is near.”

Some analysts see the private equity activities of princelings as a potential political problem as the government prepares for a leadership transition in 2012, especially since there is a recent precedent of senior leaders cracking down on the business activities of their predecessors’ children.

When he was consolidating his power in the early 1990s, Jiang Zemin, former president, shut down companies and arrested a number of business executives with close ties to Deng’s children.

After Hu Jintao, the current president, came to power in 2003 he launched a similar high-level crackdown that brought down the party secretary in Mr Jiang’s power base of Shanghai and netted prominent real estate developers and businessmen with close ties to his son.

In the jockeying for power and influence that is sure to dominate the Beijing political scene for the next two years and beyond, the new generation of princelings may become pawns in a high-stakes game, just as their predecessors did before them.

Copyright The Financial Times Limited 2010.

‘Canary in coal mine’ heralds bond trouble

By Gillian Tett

Published: March 29 2010 19:45

In recent years, a key axiom that every investment manager learnt at school (or, more accurately, in an MBA class) was that the rate at which triple A-rated countries such as America could borrow money could be labelled the “risk-free” rate – and corporate (and) other borrowing costs could be measured against it.

But is it time to rethink that “risk-free” tag? If you look at what is happening in the US and UK interest rate markets right now, the answer is “yes”. From time immemorial, it has been taken as self-evident that the swaps spread in debt markets should be “positive”. What this so-called “swaps spread” essentially measures is the cost of borrowing funds in the Libor market (for a private companies, such as banks), minus the cost of raising government debt.

And, since the private borrowing costs are influenced by credit and counterparty issues (ie: whether banks default or fail to repay), logic suggests those Libor rates should be higher than sovereign borrowing rates.

After all, triple A-rated central government is supposed to the safest thing about. But now, as my colleagues Michael Mackenzie and David Oakley first reported two weeks ago, something bizarre is going on. Back in late 2008, after the collapse of Lehman Brothers, the 30-year swap spread turned negative, when the markets froze amid wider financial chaos.

At the time, that swing did not grab many headlines, partly because the 30-year market garners little attention in the US. However, last week the closely watched – and vastly more influential – benchmark 10-year swap spread turned negative too, as 10-year Treasury yields spiralled up towards 4 per cent and above the 10-year swap rate.

That may simply be a temporary aberration. After all, the swaps market is not a perfect barometer of macroeconomic conditions and some unusual supply-demand imbalances seem to be distorting the market.

One issue affecting spreads, for example, is that investors are changing the way that they hedge mortgage rate risk, since the Federal Reserve is due to stop buying mortgage backed securities on Tuesday. A second factor is that more pension funds are trying to use swaps for meeting long-dated liabilities, rather than commit capital to buying bonds, at a time when government bonds are losing their scarcity value because of massive issuance.

At the same time, a flood of corporate issuance has left an unusually high number of entities swapping their fixed liabilities for floating exposures. More importantly still, there are rumours that some banks and hedge funds have recently suffered losses because they were wrong-footed by the swap swing. If so, they may be trying to cut their positions, thus exacerbating market movements.

However, there is another, less benign explanation for what is going on: namely that what we are seeing is a “canary in the coal mine” (to use the pithy image used by Alan Greenspan, former Fed chairman, last week), heralding future government bond market trouble and investor panic.

Think back, for a moment, to the early summer of 2007, or just before the start of the subprime meltdown. Back then, it was not the equity and credit markets that signalled disaster. Instead, the main sign of spreading investor alarm was that prices started to swing in the more obscure world of credit derivatives indices (such as ABX) and asset-backed commercial paper (ABCP).

This time round, is the swaps market another version of, say, ABX? Perhaps not yet. Personally, I will be astonished if countries such as the UK and US entirely avoid a government bond market shock; but I also suspect that this will occur some time down the road.

Nevertheless, if nothing else, the swaps spread swing does suggest that some investors are getting jittery. It also serves to underline that we do not live in “normal” markets right now. While the surface may look calm, the inner cogs of the financial system have been distorted by government intervention in ways that are still barely understood.

That, coupled with spiralling levels of government debt, has the potential to cause all manner of investment assumptions to go awry. Some trading desks and hedge funds are probably already counting the cost of that; as I noted above, the swaps spread swing has almost certainly created losses somewhere, given that it was not factored into most trading models.

But the story is unlikely to stop there. If we are moving into a world where government debt is no longer automatically deemed “risk-free”, partly because it no longer has any scarcity value, this will be a different world to the one investors know. In the months ahead, in other words, investors and politicians had better keep watching this swaps “canary”. Especially (but not exclusively) in the ever-expanding Treasuries world.

Copyright The Financial Times Limited 2010.

Steel prices to rocket under new contract

By Javier Blas in London and Peter Smith in Sydney

Published: March 30 2010 05:57 Last updated: March 30 2010 20:03

Global steel prices are set to leap by up to a third, pushing up the cost of everyday goods from cars to domestic appliances, after miners and steelmakers on Tuesday agreed a ground-breaking change in the iron ore price system.

The deal by Vale of Brazil and Anglo-Australian BHP Billiton with Japanese and Chinese mills marks the end of the 40-year-old benchmark system of annual contracts and lengthy price negotiations. The industry instead agreed to move to quarterly contracts linked to the nascent iron ore spot market.

“The benchmark system has ended. There is no comeback,” said a senior mining executive directly involved in the talks.

The world’s top ore miners stand to profit hugely in the short term from the new price system. One executive estimated that the profits of the big three producers, Vale, Rio Tinto and BHP Billiton, would be boosted by at least $5bn this year.

The new system is a response to last year’s stalemate in the negotiations between miners and Chinese steelmakers, when both sides were unable to reach an agreement on annual prices. The balance of pricing power has shifted in the miners’ favour due to the emergence of China as a voracious consumer over the past 10 years.


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Brendan Harris, a mining analyst at Macquarie in Sydney, said the shift was a “momentous” day. “It’s not every day that the pricing terms for one of the core commodities in world trade change,” he said. Steel accounts for 95 per cent of the world’s metal consumption and iron ore is the main ingredient in steelmaking.

The new price system will lift the cost of iron ore to Asian steelmakers to about $110-$120 a tonne during the April-June period, up between 80 and 100 per cent from the $60 level at which the 2009-10 annual contracts were settled.

The steelmakers said they would compensate for the increase in raw materials costs by raising steel prices by up to a third. Some companies have already raised their prices in anticipation of the move in iron ore. The cost of the benchmark hot rolled coil steel is likely to hit $725-$750 a tonne by the end of next quarter, up from $550 in January. It traded as low as $380 a tonne last year.

“The impact of higher raw material prices will be passed to consumers,” said Thorsten Zimmermann, a steel analyst at HSBC in London.

Leading Japanese steel mills, including Nippon Steel, and Chinese steelmakers, including Baosteel, had signed the new quarterly contracts, executives said. European steelmakers have yet to sign any new quarterly contracts. Rio Tinto has not announced a contract, but executives expect it to soon.

The European steel industry association, which represents some of the largest companies in the industry such as ArcelorMittal and ThyssenKrupp, warned that the increase in iron ore costs would “inevitably” have a “significant impact on prices through the whole value chain down to the end consumer”.

The new pricing system means that iron ore costs are likely to rise even further over the summer as spot prices continue to climb, analysts said. The spot price for Australian iron ore hit a fresh 18-month high of $153.6 a tonne on Tuesday.

Chris Williamson, chief economist at Markit in London, added that steel demand and supply fundamentals were likely to drive further price increases in coming months. “Inflationary pressures are building in emerging markets,” he said.

Talks to set an annual benchmark price for 2010-11 turned acrimonious last year when China refused to accept prices the miners had agreed with Japanese and European steelmakers and demanded a 45 per cent cut in benchmark iron ore prices.

The dispute threatened to hurt Sino-Australian relations when Stern Hu, Rio’s former top iron ore salesman in China, was arrested in Shanghai. On Monday, Mr Hu, an Australian national, was convicted of bribery and stealing commercial secrets that revealed the position of the China Iron and Steel Association, the lead Chinese negotiator, during the fractious negotiations. Baosteel, which this year is representing China in the talks, this month opened the door to a shake-up of the annual pricing mechanism when it said it would be “reasonable” to change the system.

“I think Chinese mills may well prefer to agree a quarterly price below current spot levels, rather than risk talks breaking down and being forced to pay more on the spot market,” said Rafael Halpin, research analyst of Steel Business Briefing in Shanghai.

South Korea’s Posco, the world’s fourth-largest steelmaker, said on Tuesday its talks with Vale continued. “Major suppliers are asking for quarterly contracts instead of annual ones ... their voice is gaining more weight,” Posco said.

Additional reporting by William MacNamara in London, Robin Harding and Jonathan Soble in Tokyo, Song Jung-a in Seoul and Patti Waldmeir in Shanghai

Copyright The Financial Times Limited 2010.