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August 1, 2009

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Steel mills should accept one ore price

CHINA wants all of the country's steel makers to accept a single ore import price once the price for this year is determined.

The measure aims to regulate excess iron ore imports by small steel makers and intermediary traders, which have hampered ore negotiations by creating unnecessary demand.

The China Iron and Steel Association has proposed an import system to force traders and mills to buy ore at a unified benchmark price agreed with foreign miners, and traders could charge a 3-to-5-percent fee for resale, Luo Bingsheng, vice chairman of the CISA, said yesterday.

The steel industry group said foreign miners are encouraging spot sales to China, leading to excess imports and distorting China's actual demand. Spot imports account for 83 percent of China's ore purchase so far this year, it said. The country's iron ore imports surged 29 percent in the first half, mainly driven by speculative buying from smaller mills and trading companies in recent months.

China's negotiation position has been hurt by rising spot ore prices, which were below contract prices in May when Japan first accepted the 33-percent cut but have now exceeded them.

The CISA also expects a "reasonable" solution in the protracted iron ore price negotiations with global miners while it blamed speculative trading for hindering the talks.

"We hope to see a reasonable result," Luo said at a press briefing yesterday in Beijing, adding China is seeking a win-win agreement.

The CISA, China's lead negotiator this year, is locked in the talks as it demands a deeper cut in term prices after major Japanese and South Korean steel mills accepted a 33-percent reduction offered by Australia's Rio Tinto, the world's second-largest iron ore miner.

The talks, originally meant to set prices for the year starting April, had missed a key June 30 deadline, with some Chinese mills already agreeing to a temporary 33-percent cut.

BHP Billiton, the world's No. 3 ore producer, this week said it has agreed to sell 30 percent of its volume for this year on a combination of quarterly negotiated pricing, spot market and index-based pricing, but only settled 23 percent of volume at annual contract prices.


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