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19% Iron Ore Price Rise Accepted
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Chinese importers yesterday agreed to a 19 percent rise in the price of iron ore--the second biggest increase in 25 years.

Shanghai Baosteel Group, representing Chinese iron ore importers in talks with major international suppliers, has accepted a price rise tabled by the world's largest resources company BHP Billiton.

They issued a statement confirming agreement had been reached with Chinese customers on prices for contracted iron ore tonnage for the 2006 contract year.

"Prices increased by 19 percent over prices negotiated in respect of the 2005 year across the range of lump and fine iron ore products supplied by BHP Billiton," the statement said.

The price rise had been agreed a fortnight ago by a number of European, Japanese and Asian steel producers.

In financial terms it means Chinese iron ore importers will have to pay around 10 billion yuan (US$1.25 billion) more each year for their raw materials.

Chinese steelmakers will sign contracts with Brazil's Cia Vale do Rio Doce (CVRD) and the London-based Rio Tinto Group, the world's other two major iron ore producers, in one or two days, said a source close to the situation. 

CVRD, BHP Billiton and Rio account for 75 percent of the global seaborne iron ore trade.

The Chinese firms' talks with suppliers have gone on for weeks. They were insisting that suppliers should take into consideration the high demand of their market and contended this should be reflected in the price of the raw materials. 

The nation's steelmakers, who account for 43 percent of global imports of iron ore, attempted to have prices adjusted after a record increase in 2005. But their bargaining position was weakened on May 16 when Germany's ThyssenKrupp AG became the first global steelmaker to agree to the new pricing structure.

Although Baosteel failed to get a favorable result the talks set a good example, said Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Co-operation of the Ministry of Commerce.

"It's the first time domestic iron ore importers have asked for Chinese factors to be considered during such negotiations," he said. "And in order to gain a bigger 'say' for China they should stick to collective negotiation in the future."

In the past Chinese iron ore importers and steel makers negotiated the iron ore price separately which often led to price speculation.

Mei also noted that Chinese negotiators should keep a close watch on issues such as reform of the domestic steel industry and collaboration with other major buyers. "They're less experienced than their rivals who've controlled the market for years," he said.

Chinese imports of iron ore rose by 23.5 percent to 108 million tons in the first four months of this year.

(China Daily June 21, 2006)

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