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Rio-Japan deal ups ante for bigger ore price cut by China

CHINESE steel industry officials yesterday said they will insist on a deeper price cut for iron ore after Rio Tinto agreed to a 33 percent reduction in annual contract prices with Japanese mills.

But analysts said it may be difficult for China to win larger discounts because demand for the steel making raw material has recovered quicker here than elsewhere.

"The prices accepted by the Japanese are even higher than in the current spot markets," said Tian Zhiping, vice president of Hebei Iron and Steel Group.

"We think there's room for a bigger reduction, and we expect the steel association to continue talking with miners," Tian said.

The China Iron and Steel Association, which leads the price negotiations on behalf of China's steel industry this year, has consistently said it wants a cut of 40 to 50 percent. The association called an emergency meeting yesterday after the Rio-Japan deal according to an industry official but the group made no public comment.

Shan Shanghua, secretary general of the association, couldn't be reached for comment. He last week said China would seek better prices. He denied reports that China had agreed on a 30 to 35 percent cut following news that Japanese mills were close to finalizing contracts with reduction of that size.

"We don't expect China will accept the prices initially, but it would be very difficult for China to win a greater discount than Japan given the fact China's iron ore demand is better than in the international markets," said Luo Wei, an analyst at China International Capital Corp.

But Gong Sheng, vice chairman of Shagang Group, a leading private-sector mill, said China shouldn't compromise. "Term prices should be lower than spot prices. The prices that Japanese mills have agreed on would mean Shagang will almost make no money under current market steel prices," Gong said.


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