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February 11, 2010

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Unapproved mills targeted

CHINA, the world's biggest steel producer, says it will crack down on unauthorized steel mills as it maneuvers to increase influence in ongoing iron ore negotiations with foreign suppliers, led by Shanghai-based Baosteel Group Corp.

Only about 300 million tons of the 567.8 million tons of crude steel produced last year in China were made with full government authorization, according to Miao Yu, a vice minister for Industry and Information Technology.

China plans to step up efforts to shut down small mills or merge them with big steel makers, cutting output to about 500 million tons by 2011, Miao said in remarks posted on the government-affiliated China Iron and Steel Association's Website.

In the last round of talks, China sought but failed to present a unified front against the three biggest ore producers - Anglo-Australian miners Rio Tinto Ltd and BHP Billiton Ltd and Brazil's Vale SA.

Instead, its bargaining position was undercut as smaller steel mills negotiated their own deals with miners, buying heavily on the spot market.

The benchmark iron ore price paid by Asian steel mills is expected to rise by 40 percent or more this year, buoyed by strong demand from massive stimulus spending on construction projects, and recoveries in other economies.

Ore is the key material in steel making.

As the world's biggest steel producer, accounting for half of all output, China wants to cut its own, more favorable deal rather than going along with prices negotiated by steel makers in Japan and South Korea.

CISA's Vice Chairman Luo Bingsheng has said China expects miners to seek a more favorable "unified price" involving a 20 percent to 30 percent increase.

Speaking to reporters in Beijing on Tuesday, Luo said the Chinese steel association has won government support for its calls for tighter controls on iron ore imports. But he said he could not give the timing or details for such moves, according to reports in the Shanghai Securities News and other state-run newspapers.


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