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China to offer new plan for ore talks

CHINA has decided on a new proposal for ongoing iron ore price negotiations, after rejecting a 33 percent cut accepted by other Asian mills a week ago, a senior industry official said yesterday.

"We have a new plan, but I cannot offer the details now," said Luo Bingsheng, vice chairman of the China Iron and Steel Association, which is leading this year's discussion on prices for domestic mills with major iron ore miners.

Japanese and South Korean steel makers agreed to a 33 percent reduction on annual term prices with Anglo-Australian ore miner Rio Tinto, adding pressure on China, which has been demanding a deeper cut.

The new proposal won't change China's insistence for a cut of at least 40 percent, which means prices would return to 2007 levels, Luo told reporters on the sidelines of an industry conference in Shanghai. He expects negotiations to be completed by the end of this month.

Mills and the world's top three iron ore suppliers, which also include BHP Billiton and Brazil's Vale, negotiate prices on an annual basis for the fiscal year starting April 1, but talks could often be extended for months as they become deadlocked over price disputes.

Traditionally, the first price deal struck by a mill and a miner would set a benchmark for the rest of the industry. But the benchmark system started to break down last year when Rio and BHP won a higher price increase than Vale after taking into account the lower shipping costs to Asia for Australian ore.

The 33 percent cut is the first downward movement in contract prices for ore, which is used to make steel, in seven years as a global recession crimps demand.

China wants a deeper cut because the reduction still puts contract prices higher than spot prices, which it says is not acceptable.


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