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Steelmakers May Gain from Iron Ore Price Drop
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Iron ore prices may decline next year as supplies improve, Luo Bingsheng, vice chairman of the China Iron and Steel Association, said as China's biggest steel mills and global miners prepare to open annual contract talks.


"Next year, iron ore prices will stabilize; we can't rule out a possibility that prices may fall slightly," Luo said in an interview in Beijing yesterday, Bloomberg News reported. "The iron ore supply status will get better next year."


Steelmakers in China, the world's biggest iron ore importer, have been trying to resist gains in the raw material's cost even as usage rises in what has become a test of the nation's ability to influence world commodity prices. Soaring demand and limited mine growth have pushed ore prices higher for four straight years, with a 19 percent gain this year to a record.


"We expect iron ore prices to rise five percent in 2007 because global steel prices have rebounded this year on rising demand," Geoffrey Cheng, an analyst with the Daiwa Institute of Research, said yesterday.


The mills' talks with suppliers BHP Billiton, Rio Tinto Group and Brazil's Cia Vale do Rio Doce start this month, according to Xu Lejiang, president of Baosteel Group Corp. Baosteel, China's biggest steelmaker, will represent the nation's main ore buyers in the negotiations, which will set the price of the steel making raw material for the year from April 1.


"China's steel demand and economic growth is key to the global supply and demand, and that will continue to be the case next year," Luo said.


The government-backed association represents China's biggest steelmakers.


Vale, BHP Billiton and Rio Tinto account for 75 percent of the global seaborne iron ore trade. China produces a third of the world's steel.


In separate remarks, Chen Ying, chief financial officer at Baoshan Iron & Steel Co, Baosteel Group's listed arm, also said that supplies of iron ore were rising.


"The iron ore supply situation has changed from tightness into basic balance, and even moving toward an oversupply in the future," Chen said in an Internet briefing with investors.


The China Iron and Steel Association will focus on regulating domestic iron ore importers, Luo said. It will urge local steelmakers to build long-term iron ore supply contracts with local miners, Luo said.


The nation aims to limit the supply of iron ore to smaller steelmakers and reduce the number of importers to 99 this year, from 118 last year, according to the association.


China's economy, which expanded at an average 9.5 percent in the past five years, fueled a 25 percent jump in steel output last year as more cars and appliances were built. The nation's crude steel output may rise 19 percent to as much as 420 million tons this year, Lu Jianhua, head of foreign trade at the Ministry of Commerce said last week.


(Shanghai Daily November 1, 2006)


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