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Tough stance makes China's ore talks tougher
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08:28, July 31, 2009

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Within 10 days, an agreement is expected to be reached between China and the world's three largest iron ore mining giants on iron ore price negotiations, but China will still refuse the 33 percent iron ore price cut, said Li Xiaowei, vice-chairman of the China Iron and Steel Association (CISA) on July 23, according to Chinanews.com.

Suppliers, however,are as tough as Chinese steel makers.

Reporters learned that among the world's current three largest iron ore suppliers, Japanese, South Korean and European enterprises have reached price agreements with the Australian firm Rio Tinto and Brazilian firm Companhia Vale do Rio Doce (CVRD), with Australian mines cutting prices by 33 percent and Brazilian mines 28 percent. This has increased pressure on China in the negotiations.

Li also said on July 23 that any party pursuing a monopoly or excessive profit will lose out in the long term. He said that China can seek and set its prices and its mechanisms and is entitled to set an appropriate price because China has a huge demand for iron ore.

However, Brazilian giant CVRD denied reports that it has settled a price with Chinese steel companies on the same day of Li's remarks. A CVRD official said that the company has not yet agreed a benchmark iron ore price for 2009 with any Chinese steel enterprise, negotiations are still ongoing, and the company is taking a tough stance.

BHP Billiton announced on July 29 that it has agreed an annual contract price with clients whose demands account for 23 percent of its iron ore output. It also disclosed in a statement that price negotiations for 47 percent of its output are still ongoing.

BHP Billiton has not disclosed progress of its negotiations with Chinese clients. However, statistics show that about 50 percent of BHP Billiton's iron ore was sold to China in 2008.

Luo Bingsheng, CISA executive vice-chairman, said at a high-level symposium between large steel enterprises and consulting firms recently held by the Ministry of Industry and Information Technology that iron ore imports should be regulated urgently and he believed that "on the spot" trading should be abolished.

The coexistence of iron ore long-term agreements and "on the spot" trading is unique to the Chinese market.That is different from Europe, Japan and South Korea. Iron ore long-term agreements set prices by annual negotiation. Meanwhile, medium and small-sized mills which have a demand for production but no import license have created a market for "on the spot" trading.

By People's Daily Online

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