China Pressuring Iron Ore Negotiations With Secret Price-Cap...

China Pressuring Iron Ore Negotiations With Secret Price-Cap Policy

By Interfax-China
07 Mar 2006 at 07:55 AM EST


SHANGHAI (Interfax-China) -- China is blocking iron ore imports above a price cap to put pressure on overseas suppliers during annual benchmark price negotiations, according to a government document obtained by Interfax.

The secret regulation bans imported iron ore contracted above standard prices, according to the document issued by the Economic and Trade Commission of Jiangsu Province dated last week.



A governmental source said the document was distributed by the Ministry of Commence to key port provinces with the aim of restricting the spot price of iron ore by limiting imports during the iron ore negotiations.

The document says customs authorities are blocked from issuing import permits for those iron ore imports, especially from the iron ore suppliers BHP Billiton [NYSE:BHP; LSE:BLT], Rio Tinto [NYSE:RTP; LSE:RIO] and CVRD.

Steelmakers or traders applying for the import permits also have been ordered to offer local authorities detailed information about the cargo suppliers, according to the document.

"The price cap policy was introduced to pressure on the foreign iron ore suppliers during the price talks," an anonymous official at Shougang International Corp., a trader for Beijing-based Shoudu Iron and Steel Group, told Interfax Tuesday. "The policy will be terminated automatically in April, the beginning of the fiscal year."

The spot price cap for the Australian iron ore is $54 (CFR) and the cap for the Brazilian iron ore is $70 (CFR), the same level as the 2005 long-term contract price, according to the document.

Currently, Baosteel is representing Chinese steelmakers during the iron ore price negotiations with the major iron ore suppliers. The central government is pressing for a less-than-5% price hike in the long-term iron ore contract prices this year, the source said.

Ju Hao, the deputy director of the mineral department at the China Chamber of Commerce of Metals, Minerals, and Chemicals Importers and Exporters (CCCMC), said large iron ore stockpiles in China's ports could counterbalance the decreased supply as a result of the new regulations.

Additionally, the document also banned steel makers from feeding iron ore into the blast furnaces under 200 square meters in order to speed the elimination of the facilities.

China plans to shut down all the blast furnaces under 200-square-meter in 2006 and stop production of blast furnaces under 300-square-meter in 2007, according to the China Iron and Steel Association.