China Flexes Muscle In Steel Industry

Successful pricing negotiation puts China in leading role.

Successful negotiations of iron ore prices this year by China's leading steelmaker Baosteel show how the nation is exerting more influence on the global industry, a ratings agency said Jan. 10. Brazil's Companhia Vale do Rio Doce, the world's largest iron ore producer, announced last month that it had secured a 9.5% price hike from China's biggest steelmaker and lead negotiator Shanghai Baosteel Group Corp.

"This benchmark will turn out to be the de-facto global standard, which indicates Baosteel's growing importance in the negotiation process and reflects its delegated authority from the Chinese government," Fitch Ratings said in a statement. "This will help to support China's credibility as a leading player in the global steel sector," Fitch added.

Fitch noted that the decisive negotiations may have come in reaction to Japan's Nippon Steel and to South Korea's POSCO announcement that they would hold joint discussions with iron ore providers to leverage their buying power. The early settlement was also a positive for market participants in terms of eliminating uncertainty, Fitch also said.

Fitch said China's steel mills have intensified domestic iron ore mining to lessen their dependence on imported ore. However, the low iron content of Chinese ore means that the country will remain heavily dependent on imports, even though supply and demand is expected to become more balanced in 2007 and into 2008, Fitch said.

The agency added that it expects China's crude steel output to be 480 million tons this year, up 15% from 2006, equal to an additional 80 million tons of demand for iron ore.Citing the China Iron and Steel Association, Fitch said China is likely to import 355 million tons of iron ore in 2007, up 10% from a year earlier.

Copyright Agence France-Presse, 2007

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