China Holds Firm On Iron Ore Talks After Being Out-Maneuvered

China insisted May 18 it would continue to hold out for lower prices in drawn-out talks with the world's biggest iron ore suppliers, even as analysts said the Asian giant had been out maneuvered. "In setting the price for China's iron ore imports, negotiators must not only consider the situation in Europe, but also in Asia -- and particularly here in China," the official Xinhua news agency quoted a spokesperson from the Chinese steel association as saying. "If the mining side fails to do this, Chinese steelmakers will find it unacceptable."

The dispatch followed a deal struck May 15 between Germany's largest steelmaker, ThyssenKrupp AG, and Brazil's Companhia Vale do Rio Doce -- the world's largest iron ore miner -- for a 19% increase this year for iron ore prices from a year ago.

Japanese steelmakers and Italy's Ilva followed suit May 17, according to a statement posted on Companhia Vale do Rio Doce's website May 18.

Although in the past Japan and Europe took the lead in negotiating annual contract pricing, China, the world's largest consumer of iron ore, was keen to take a bigger role in the setting of raw material prices this year.

Last year China complained bitterly after domestic firms agreed to a 71.5% hike in the price of iron ore and said it would not tolerate a repeat of last year's arrangement.

Baosteel, which is heading the discussions for all Chinese firms, wanted to secure the cheapest possible price from the world's three largest exporters -- Australia's Rio Tinto, Anglo-Australian miner BHP Billiton and Companhia Vale do Rio Doc. With China's economy expanding last quarter at 10.2%, its unquenchable thirst for nearly half of the globe's iron ore imports meant it thought it would be able to hold more sway over the negotiations.

As one of Europe's largest steel makers, ThyssenKrupp AG's decision to step in ahead of the China agreeing to pay much more than the 10% hike that Baosteel was reportedly seeking has made it very difficult for the Chinese. "It has enlarged the difficulties for Baosteel's negotiation with foreign suppliers," said Zhao Zhicheng, a steel analyst at Everbright Securities in Shanghai. "China is on the weaker side so I think it will probably have to forcibly accept the price hike."

Copyright Agence France-Presse, 2006

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