China’s steel association wants to cut iron ore imports and will keep pushing for a unified price that erases the difference between spot and term prices, senior officials from the body said on Tuesday.

The China Iron and Steel Association (CISA) represented Chinese iron
ore buyers in pricing talks last year but failed to reach agreement on
term prices with any of the top suppliers, Vale, Rio Tinto and BHP
Billiton.

This year CISA will continue to “organise” the talks but Baosteel,
China’s leading steel mill, will return to the table as the lead
negotiator, CISA vice chairman Luo Bingsheng said.

CISA has blamed media reports for undermining last year’s negotiations and Luo asked reporters to stay away this year.

“The talks by their very nature are a commercial activity and therefore
the two sides should strictly abide by the rules of commercial secrets.
So, in order to help the talks go smoothly, please leave them in
peace,” said Luo.

CISA’s outspoken chairman, Shan Shanghua, who vowed to wring a 40
percent price cut out of the big miners last year, was not present at
the news conference and was not mentioned.

CISA has won government support for several proposals to improve
regulation of iron ore imports, Luo told reporters. They included
unifying the price for iron ore imports, cutting the number of mills
permitted to import ore and forcing small steel mills to buy via a
licensed importer.

But analysts say that China’s own iron ore is of such poor quality that
steelmakers have no choice but to import huge volumes from Australia
and elsewhere if they are to keep producing steel at a similar rate to
2009.

Last year China’s crude steel output accounted for almost half the
world’s total. The country’s steel output and iron ore imports both
soared to record highs in 2009.

Like last year, China will insist that international miners should sell
iron ore to the Chinese market at a unified price, eliminating the
difference between spot and term prices, another CISA official said.

CISA blamed small and medium-sized steelmakers and importers for
propping up spot prices last year, putting it in a difficult position
as it sought bigger price cuts for term supplies.

Chinese steelmakers paid 34.19 percent less for imported iron ore in
2009 than 2008 on average, Luo said, referring to the price of ore
delivered to the mill.

China is widely expected to face demand for a higher iron ore price in
this year’s talks and Luo said the price was likely to trend up as
prices of other imported raw materials also rise.

A Chinese newspaper reported last week that Australia’s big miners were
asking their Japanese and South Korean customers for a 40 percent hike.

CISA expected miners to call for a 20-30 percent increase, the official China Securities Journal reported in December.

Climbing import prices will put upward pressure on domestic ore prices,
which could hurt Chinese steel mills facing a surplus of steel
products, Luo said.

Currently about 50-55 percent of Chinese iron ore imports are conducted
at the old term price while the rest are under market price, Luo said,
without elaborating.

But as Beijing moves to rein in a frenzy of new investments,
particularly in the construction sector, demand for steel plate and
steel products used for manufacturing could rise, helping improve
profits at major state-run mills, the association added.

China, the world’s largest steel maker and consumer, imported 42
percent more iron ore last year at 628 million tonnes, official customs
data showed.

That exceeded actual demand by 86 million tonnes, CISA said, an amount roughly equivalent to one month of Chinese consumption.

CISA’s Luo said it was vital for the Chinese steel industry to
consolidate itself but that would be tough since many different levels
of government administration supervise steelmakers of different sizes.

Source: Reuters

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