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China set to trim steel output

CHINA is ready for a breakdown with global miners in this year's iron ore price talks and would rather reduce steel output if supplies are disrupted, a senior industry group official said.

The country would not make concessions in the negotiations and continue to hold out for a cut of 40 to 45 percent in annual contract prices, said Shan Shanghua, secretary general of the China Iron and Steel Association.

Anglo-Australian miner Rio Tinto last month agreed with Japanese and South Korean mills on a 33-percent price cut. But a discount of that scale would not allow Chinese steel mills to make money as prices have slumped.

Japan shouldn't be taken as a representative for Asia in the price talks as its imports only account for one sixth of China's, Shan said in remarks published in the China Securities Journal yesterday, adding that the Japanese could accept such cut as many of them hold interests in Australian mines.

"It's impossible that China will allow (ore) miners to maintain high profit while its own mills are losing money," Shan said. Mills negotiate prices annually with the world's top three ore suppliers which also include Brazil's Vale and Australia's BHP Billiton.

Shan said that in case the negotiations collapse, China could turn to spot purchases as there is an oversupply in the ore market, and in a worst-case scenario, it would rather cut steel output if supplies are affected.

Still, China seems to be increasingly isolated, with more term deals being reached.

Brazilian miner Vale on Wednesday said it agreed with Nippon Steel Corp and South Korea's POSCO to a 28-percent cut for its benchmark fine ores. And industry reports yesterday said Japan's No. 2 mill, JFE Steel Corp, has also settled prices with BHP, agreeing to the same cut as that reached with Rio. Rio and BHP won bigger price increase last year than Vale in recognition of the lower freight cost to Asia for Australian ore.

Another senior CISA official earlier said talks could end before the end of this month, which set prices for the fiscal year starting April 1.


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