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China steelmakers want govt in ore talks

(Agencies)
Updated: 2010-03-13 15:49

SHANGHAI/BEIJING - The vice president of the China Iron & Steel Association (CISA) and the heads of more than 10 Chinese steelmakers wrote a joint letter to Premier Wen Jiabao on March 11, asking him to take up the issue of rising iron ore import prices at a national level, the China Securities Journal reported on Saturday, quoting sources.

The companies included Baosteel, Wuhan Iron & Steel, Anshan Iron & Steel and Hebei Iron & Steel, it said.

China's steel sector, which produced almost half the world's steel in 2009, faces a huge increase in iron ore costs this year. China's own iron ore output cannot meet domestic producers' needs so they depend on imports.

The mills have long used a system of negotiating annual benchmark prices with the top global iron ore suppliers Vale, Rio Tinto and BHP Billiton.

But last year China failed to clinch an agreement after CISA, which was leading the negotiations, demanded a cut of 40-50 percent. Chinese mills used an interim price cut of 33 percent instead, based on deals done in Japan and South Korea.

This year, spot market prices for iron ore have soared above $130 per ton, double the 2009-10 contract price, spurred by strong demand from Chinese steelmakers and global strength in commodities markets.

New system to come?

CISA had begun the year hoping for a price rise of about 20 percent. CISA's secretary general told Reuters in an interview last September that he expected iron ore oversupply in 2010.

The chairman of Hebei Iron & Steel said on Thursday that many mills were now abandoning the traditional annual contracts that run from April 1 in favour of deals starting on January 1, and he saw the old system changing this year.

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Vale, the top miner, has proposed quarterly pricing to some Japanese mills this year, a source with knowledge of the talks said on Friday. It has already told some Chinese mills it plans to drop the benchmark, an analyst said.

All three big miners have now put annual pricing talks with China on hold, Dow Jones newswires quoted an unnamed steel industry executive as saying on Friday.

By ditching annual pricing deals, the miners may be banking on a global economic recovery pushing up demand for steel this year, which could keep spot prices of iron ore on the rise.

China's own steel production hit a record 1.80 million tons per day in February, weakening the mills' case in price negotiations.

But some analysts have warned of large stockpiles of steel products in China, which could soften the impact of a demand recovery. China also has 71 million tons of iron ore stocked up at its ports, more than a month's worth of imports.