chinese steel mills plans...

Chinese Steel Mills to Lower Costs Through Long-Term Contracts
By Chris Gill and Erik Dahl
15 May 2007 at 10:38 AM GMT-04:00
CHENGDU (Interfax-China) - Chinese steelmakers are beginning to jointly purchase iron ore and charter ships, heeding earlier suggestions from the China Iron and Steel Association, a top CISA official said.
The collaboration is aimed at lowering steelmaking costs through long-term iron ore purchasing and ship chartering contracts, which will benefit domestic steelmakers as a whole.

"Regional collaboration between steel mills has already started, with some large steel mills being commissioned to purchase iron ore from overseas on behalf of small and medium-sized steelmakers," Luo Bingsheng, CISA vice chairman told Interfax today. "Small and medium-sized steel mills are now able to secure a stable iron ore supply at a reasonable price. However, they are still required to pay a commission to the large steel mills," Luo added.
The CISA's regional union idea divides China into several purchasing areas, which include Shougang and steel mills in Hebei Province as a group, Anshan Iron and Steel Group (Angang) and steel mills in Liaoning Province as another, as well as grouping steel mills in Shandong and Shanxi provinces, steel mills in central China and southwest China, and steel mills in eastern China.
Upon questioning the practicality of the collaboration, Luo commented that "it is unfair for large steelmakers to be reluctant to give up profits gained from reselling imported iron ore to smaller steelmakers at a higher price. Sooner or later, steelmakers will realize the importance of collaboration as overseas steel mills often practice group purchasing."
Yang Siming, Nanjing Iron and Steel Group Co. Ltd.'s general manager told Interfax that they are currently searching for regional cooperation partners for the purchase of overseas iron ore. "We are currently negotiating with several 5-million tonne steel mills in southeastern China. Half of our current iron ore supply contracts are long-term ones."
Shanxi-based Zhongyang Iron and Steel Co. Ltd. is also negotiating with Taiyuan Iron and Steel Group for iron ore purchase commission. Company official Wei Jianzhong commented that, "the current commission is about 0.4% to 0.5% of the iron ore spot-price."
"Jinan Steel is not likely to form regional collaborations with small steel mills at the present. Last year Jinan Steel generated RMB 500 million ($64.98 million) from reselling imported iron ore to small-scale domestic steelmakers," a Shandong Jinan Iron and Steel Group Co. Ltd. official, surnamed Wang, said.
"Current high freight costs are partially market driven and partially a result of market speculation. It is common practice overseas for steelmakers to cooperate or merge when faced with high raw material costs and market speculation. Domestic steelmakers will be tested, with only the most competitive surviving," a CSIA official, surnamed Chen, said.
China's iron ore imports accounted for 45.96% of global seaborne trade volumes last year, up 25.49% from 2001. China imported 326.30 million tonnes of iron ore last year, 2.54 times more than in 2001.
The global iron ore shortage since 2002 can be mainly attributed to China's soaring iron ore imports, which increased 18.56% from 2005 to 2006. Development of Chinese mines and increasing output of domestic iron ore will go some way to relieving dependency on overseas iron ore, Luo noted.
China's large and medium-sized mines produced a combined total of 137.52 million tonnes of iron ore in the first quarter this year. China has identified 59.385 billion tonnes of iron ore reserves to date, most of which are low-grade ores with an average grade of between 30% and 35%.
China's iron ore imports grew at a rate of 18.56% from 2005 to 2006, down 13.72% from the 2004 to 2005 rate.
Luo predicts that growth rates will further decline this year, as major iron ore exporters like Brazil, Australia, India and South Africa have become increasingly dependent on Chinese demand.
A new group of global iron ore mines are set to commence production in 2008, which will greatly alleviate global iron ore supply pressure. The projects include Australian FMG's 350 million-tonne iron ore mine.
Luo also urged Chinese steelmakers to develop domestic iron ore reserves in a sensible fashion and to further control overseas iron ore resources through mergers.
Aside from Brazilian and Australian iron ore mines, Chinese steelmakers are being encouraged to develop iron ore reserves in South Asia, Canada, South Africa and South America.