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China still insisted on stability of iron ore prices in 2006, after the latest round of exclusive talks on a long-term contract failed to yield any progress.

 

China’s largest steel maker Shanghai Baosteel Group Corp failed recently to reach an agreement in 2006 iron ore prices with major overseas miners, such as Australia's BHP Billiton Ltd, Rio Tinto Group and Brazil's Companhia Vale do Rio Doce, according to an unnamed source close to the subject.

 

The negotiation broke down due to the two sides insisting on vast differences in prices.

 

"Miners insisted on raising prices further while we insisted on cutting (prices) ... We didn't get any chance to (go over) detailed figures because both parties are expecting opposite price directions," a Baosteel official said.

 

The Chinese side said since domestic steel manufacturers are in oversupply and overseas suppliers are so diversified, a price increase for iron ore is not justified.

 

This year, Baosteel is the only representative of Chinese enterprises in talks with miners. The prices Baosteel agrees upon will be accepted by all domestic mills and iron ore traders.

 

The China Iron & Steel Industry Association said all the other steel makers and iron ore trading companies have been banned from holding individual iron ore price negotiations for 2006 term contracts with international miners.

 

It said Chinese mills and trading firms must follow related regulations, without talking with the three iron ore miners or signing long-term agreements with miners for cash prices.

 

The association predicted that the country's crude steel production growth would slow to 10 per cent this year, compared with the 24.56 per cent in last year.

 

Meanwhile, China is also developing new sources of iron ore imports.

 

China's iron ore import from India increased by over 36 percent last year over 2004. The spot price for iron ore also declined late last year to US$66 per ton from US$83 last April, statistics from the association said.

 

Long-term iron ore prices between major suppliers and buyers are generally settled before April, when delivery begins.

 

Global miner BHP Billiton Ltd was quoted by Reuters as predicting negotiations could be extended beyond April.

 

"The contract year has at least another month to run ... sometimes it is settled before Christmas and sometimes it's not settled until after the contract year," said Graeme Hunt, president of BHP Billiton's iron ore division.

 

If an agreement cannot be reached till April 1, the two sides could trade iron ore at last year's price for another six months before they reach a final agreement.

 

However, the on-the-rocks negotiation has already caused a price rise in steel products at home.

 

Baosteel has raised its key steel products by about 10 percent for the second quarter this year from this quarter, according to the company's salespeople.

 

The prices for hot-rolled and cold-rolled steel products may see a rise between 150 to 700 yuan (US$18.5-86.4) per ton.

 

In fact, China is showing an increasing role in the long-term price negotiations this year.

 

Japan's Nippon Steel, a major iron ore buyer that used to play a major role in negotiation, has not yet reached 2006 agreement with suppliers, awaiting China's outcome.

 

Experts predict that China's say in negotiation is likely to keep this year's price increase small.

 

Last year, Chinese mills and iron ore traders accepted a 71.5 percent rise in iron ore prices, which was set by Japanese companies.

 

Figures from the customs show that in 2005, China imported iron ore of 275 million tons, up 32.3 percent year-on-year and accounting for 43 percent of the world's total ore shipment.

 

(China Daily February 24, 2006)