in News / Business News (submitted 2010-03-02)
Hebei Iron and Steel Group has proposed to the Ministry of Industry and Information Technology (MIIT) that a national iron ore company be formed to centralize iron ore imports, according to sina.com.cn.
A senior executive from the nation's second largest listed steel mill, said the new company would consist of the 16 large steel mills in China, each with an annual capacity of over 10 million tons. It would also unify import prices and distribute iron ore by ownership ratios.
"Such a move would enhance the nation's bargaining power at the annual iron ore negotiations with the big three global miners - Vale, BHP Billiton and Rio Tinto," the source said.
Hebei Steel Vice-General Manager Tian Zhiping, however, said on Monday that he was unaware of any such proposal.
The plan comes at a time when spot prices of iron ore have soared to a record high in the Chinese market and the China Iron and Steel Association (CISA) is insisting on a unified price.
Luo Bingsheng, vice-president of the association, said last month that reducing the number of licensed importers and promoting the agent system at a unified price for iron ore will be primary targets for CISA this year.
Under the suggested plan, agents can levy a commission of 3 to 5 percent on the total iron ore import charges collected.
He said China must strive for a unified iron ore price for all imports to regulate the market, and erase the differences between long-term and spot prices.
Luo said the ministry has concurred with the CISA on the need to tweak the regulations for iron ore imports.
Spot iron ore price hit a record high after the Spring Festival holiday, putting further pressure on the 2010-11 contract talks that are scheduled to start on April 1.
Prices of the 63.5 percent iron-content ore rose to $142 per ton including freight on Monday, according to Mysteel Index, more than double the $60 a ton benchmark price level reached in 2009.
China is committed to increase steel production this year to 621.5 million tons, and steel mills have been increasing iron ore imports to meet rising demand, boosting expectations of an increase in the annual contract prices.
Investec Securities Plc last week raised its forecast for 2010 iron ore prices to an increase of over 55 percent compared with a 20 percent hike earlier.
BHP has already indicated that the annual contract prices should be linked more closely to the spot market rates. Vale, on its part, said it expects to secure a contract price for 2010 that reflects the current spot rate.
"The Hebei proposal aims to enhance import concentration to gain more bargaining power at the ore talks. However, the same can be achieved by consolidating steel mills, and I think that would be an easier step," said Hu Kai, a senior analyst at consulting firm Umetals.
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