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Iron ore price hikes threaten disruption of China's steel market
Last Updated(Beijing Time):2010-04-23 08:28

A senior Chinese industry official has warned major iron ore producers that huge price hikes are likely to damage China's steel market and relations between iron ore and steel producers.

China's steel mills were under "great pressure" from soaring iron ore prices, which were expected to erode profits, said Zhu Hongren, chief engineer with the Ministry of Industry and Information Technology (MIIT) Thursday.

Zhu said at a press conference that price hikes in iron ore would lift costs for Chinese steel makers and dampen their profitability, given their heavy reliance on iron ore imports.

In the first two months of this year, profits of China' steel makers accounted for about 3 percent of their total revenue, compared with 2.9 percent in 2009 and 4 to 5 percent in 2008.

China, the world's largest iron ore consumer, imported 155.03 million tonnes of iron ore in the first quarter, up 18 percent year on year.

Vale, Rio Tinto and BHP Billiton, which account for almost 70 percent of the global iron ore trade, all announced they would shorten the long-term agreements for international iron ore prices. They also asked for price hikes of 80 percent to 90 percent under the new pricing scheme.

Zhu said raising steel prices would only soak up some of the cost and the steel-consuming sectors would not stand continuous price increases.

He hoped the two sides of iron ore trade would take the interests of both sides into consideration when resources saw big price gains, adding that asking for higher prices would hurt downstream business and the long-term stability of the relationship.

The steel industry also faced problems of overcapacity and outdated production capacity, Zhu said, calling for domestic steel firms to accelerate the closure of outdated production capacity and industrial restructuring to increase competitiveness.

Wuhan Iron and Steel Group, China's third largest steel maker, said in mid-April that it would raise prices on key steel products by 500 yuan (73 U.S. dollars) per tonne from May on rising raw materials costs.

Other steel makers, including Baosteel and Anshan Iron and Steel Group, were also set to pass costs to consumers.

Yao Jian, spokesman of the Ministry of Commerce, said on April 15 that Chinese steel mills had reduced reliance on imports, lowering the proportion of iron ore imports from 70 percent to 50 to 60 percent this year, as the number of domestic suppliers rose.

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