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Despite China, the world's biggest iron ore importer, setting a benchmark ore price for the first time this year, experts say suppliers still control the market.

 

This year's price creep, following four consecutive years of large-scale rises, implied that the leading ore miners maintain their firm grip on price setting.

 

Hundreds of Chinese buyers were forced to accept a 71.5 percent increase in the iron ore price in 2005, a trend led by the original agreement by a Japanese mill. This meteoric rise was then followed by a further 19 percent increase last year.

 

China's largest steelmaker Baosteel settled the iron ore price for 2007 with an increase of just 9.5 percent. 

 

Luo Bingsheng, executive deputy president of the China Iron & Steel Association (CISA), said the price reflected market conditions, and China had made headway in taking the lead in negotiations for the first time.

 

According to the rules of the international iron ore trade, the first price agreed between a major buyer and miners is taken as the benchmark for the long-term price.

 

Luo said China, which accounts for nearly half of the global iron ore trade and contributes 80 percent of demand growth, should "have a say" in international prices.

 

"We are satisfied with Baosteel's performance in the negotiations this year," Luo said. "The (9.5 percent) increase is acceptable for Chinese steelmakers since they enjoy good profits."

 

As China increased its proportion of long-term contracts in iron ore imports, the average import price in iron ore declined slightly last year from 2005, despite the 19 percent increase, according to statistics from CISA and the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters.

 

Suppliers' strong influence

 

This year's 9.5 percent price increase is expected to be absorbed through freight. However, experts warned that a "leading position" in the 2007 negotiations is not enough of a buffer zone.

 

Another price increase after four consecutive years of rises implied that suppliers still have a stronger influence on the global market than buyers, said Xu Xiangchun, an analyst with Beijing Langesteel Information Consultation.

 

The three largest suppliers, CVRD from Brazil and Australia's BHP Billiton and Rio Tinto, control over 70 percent of the global iron ore trade.

 

When sellers talked about increasing capacity, the Australian firms stonewalled since they had no intention to expand capacity in the near future.

 

Meanwhile, China's imports are set to grow 9.2 percent this year. The Chinese steel-making industry is taking steps to reduce its dependence on these major miners.

 

Steelmakers and trading companies have applied iron ore import licenses since 2005, reducing China's iron ore importers from 523 in 2004 to 118. This number should decrease even further this year as the import rules are tightened.

 

Official figures show large domestic mines produced 521 million tons of iron ore in the first 11 months of 2006, up 38.2 percent year-on-year, easing the tight market situation.

 

A number of steelmakers moved their factories to port cities last year to lower transport costs.

 

Shanghai Baosteel has built a new steel factory in the southern city of Zhanjiang while Wuhan Iron and Steel Corp has developed a modern iron and steel works in Fangchenggang, also in south China.

 

Angang Steel Co has new plants in Yingkou in northeast China. And another steel giant, Shougang Group based in Beijing, will complete its massive relocation to Tangshan, Hebei Province, by the end of 2010.

 

(China Daily January 11, 2007)