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Ore: the "greatest pain" for China steel industry
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08:25, August 11, 2009

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The iron ore negotiations which last up to half a year are full of twists and turns. A harsh reality is that, despite the decline in steel demand, production overcapacity in China and many other factors which seem to be good for the buyer in iron ore negotiations, China's iron and steel industry is still at a disadvantageous position in the negotiations of ore prices.

China Iron & Steel Association was expecting price decline but the international iron ore giants didn’t take that action. As the culprit behind the full loss of China's iron and steel industry last year, iron ore has become "the greatest pain" of China's iron and steel industry.

When the economy has not yet begun to stabilize and pick up in the beginning of the year, imports of iron ore began to surge and the price rose in an irrational manner.

Talking about the excess of imports of iron ore, industry experts worry that this not only distorts the relationship between the domestic iron ore supply and demand, but aslo leads to the rise in ocean freight, resulting in the accumulation of a large stockpile of iron ore in the port, all of these harm the healthy development of iron and steel industry.

The chaos in iron ore market is closely related to the low industry concentration of China's iron and steel industry.

According to incomplete statistics, China's has more than 70 large and medium-sized steel enterprises, but the top five steel production enterprises accounted for only 28.5 percent of total output. But in the United States, the European Union, Japan and other developed countries and regions, the top four companies share about 60% to 70% of total steel output. Behind low industrial concentration are the complex contradictions between enterprises, particularly the conflict between large steel enterprises and small and medium-sized steel enterprises.

Low industrial concentration is the main reason for China not having the upper hand in iron ore negotiations.

Only 112 large-scale Chinese iron and steel enterprises are eligible for iron ore imports.
Despite repeated requests of China Iron & Steel Association to stop market speculative manipulation, some large enterprises still take advantage of their import privileges, and make amazing profits by selling iron ore. Thus some small and medium-sized iron and steel enterprises try their best to contact with foreign iron ore giants, and this provides good opportunities for foreign iron ore giants.

In addition, deep-rooted problems such as the weak maritime control capacity, the lack of reasonable industrial planning, and poor business management also directly undermine China's iron ore price.

It is unrealistic to change the industry concentration of China's iron and steel industry in short term, but the implementation of strict policies to strengthen market regulation are still the effective initiatives at the moment.

Recently, vice president of China Iron & Steel Association, Luo Bingsheng said that China will use the annual benchmark iron ore prices as a uniform price of imports, regardless of which country the ore comes from, or the buyer is large steel companies, small and medium sized enterprises or traders. All deals go in accordance with the uniform price.

That means that, once the annual prices of 2009 set, those who do not apply the uniform price can not declare it at customs. For those enterprises which are not qualified to import , they can find their own traders or large steel enterprises as agents, but traders and large-scale steel mill agents can only charge a certain percentage of the costs, thus to resolutely prevent the iron ore price speculation.

In addition, relevant departments have also introduced effective measures to control the iron ore market chaos. For example: conduct a thorough investigation into the stocks in port, cancel the agent system, and to shut down spot transaction center in ports which conduct illegal operations.

China's iron ore negotiations revealed a scar in iron and steel industry which has been waiting to be cured for a long time.

We hope that after the pain of the iron ore negotiations, China's iron ore trade system will gradually be improved, the market order will gradually be standardized, and the structure of the iron and steel industry will be further optimized, so that China will no longer find be put in such an embarrassing situation in iron ore negotiations.

By People's Daily Online

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