you think the chinese would listen to what the guy running the...

you think the chinese would listen to what the guy running the CISA says? read the last paragraph.

http://www.businessday.co.za/articles/Content.aspx?id=95559

Price threat to Chinese steel mills
DAVID STANWAY Published: 2010/03/08 07:04:59 AM

Deng Qilin

CHINESE steel mills were facing big difficulties during this years annual iron-ore benchmark talks with big price hikes set to push many of them into the red, the head of Chinas third-biggest steel firm, Wuhan Iron & Steel Group, said yesterday.

Deng Qilin, who also chairs the China Iron & Steel Association (Cisa), said the steel mills 61% dependent on foreign supplies last year had no choice but to accept the hikes being forced on them by Rio Tinto and BHP Billiton of Australia and Brazils Vale.

This is a sellers market so the miners will decide the price increase in the end, but China needs to tell them they cannot raise prices indiscriminately.

Cisa said at the end of last year that the miners were likely to ask for a price increase of 20% this year, but even the most conservative analysts are now expecting a hike of at least 40%-50%.

Deng complained that the big miners had responded to the steady recovery in the global steel market with unfair price demands. If we can accept the costs we can come up with an agreement, but if we are making losses, how can we agree? If we are earning nothing, how can we accept it?

While our iron-ore mines are 100m deep, they only have to dig about 1m underground and extract the ore and they can then sell it at 100, he said.

He said slashing output was not an option for Chinese mills, so the only thing they could do was raise their prices in order to cover their higher costs, but that would require government approval and could have a severe effect on downstream industries and derail the countrys economic recovery.

Deng called on the government to intervene and bring discipline to the iron-ore market, mentioning possible reforms to the import licensing system.

China needs to adopt measures to handle the disorder in iron ore imports and the massive rises in prices by foreign suppliers, he said.

Cisa has long been lobbying for a substantial cut in the number of licensed importers in China, blaming some of the smaller players for undermining its position during last years benchmark talks and allowing the big miners to justify higher prices.

Steel industry delegates attending the National Peoples Congress have recommended that the government set up a special third party that would negotiate directly with the mining giants and be responsible for all imports into the country.

Xinhua news agency cited Wang Shoudong, the president of the Shandong Taishan Iron and Steel Group, as saying that Beijing should establish a new metallurgy ministry to handle all iron-ore business in China and increase the countrys say during the negotiation process.

According to reports, Hebei Iron and Steel has also proposed to the ministry of industry and information technology that the government set up a unified iron- ore importing company in which the big steel mills hold equity stakes. But company president Wang Yifang denied knowledge of the proposal.

Benchmark talks between China and the mining giants ended in acrimonious stalemate last year, with Cisa unable to persuade the companies to offer anything more than a 33% cut in prices despite a global steel market collapse.

The negotiations are this year being led by Shanghais Baosteel.

Wuhan Iron and Steel aims to end its dependence on the three mining giants by making overseas acquisitions. Deng said it would effectively be self-sufficient within three to five years.

Last year it bought a stake in Brazilian miner MMX in a deal that also included a 20-year iron ore supply contract. It is also planning acquisitions in Australia, Chile and Venezuela.

Deng said yesterday he hoped that all companies will go abroad to buy equity stakes in miners and guarantee supplies. Reuters