China's novel approach to iron ore negotiations
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"The price hike will definitely make the Chinese steel industry suffer in the short term. But in a long run, it may do the industry good," Zhou said, adding that it is the same for industries using steel like the auto, home appliances and shipbuilding businesses.
"China must accommodate itself to the quarterly benchmark pricing scheme, and even pricing schemes based on steel indexes," Zhang said.
But more importantly, China should improve the financial market by developing iron ore futures and its own metal index, Zhang added.
The indexes of three major iron ore index providers - the TSI index, MBIO index and Platts index - are based mainly on Chinese demand.
While China, the world's biggest iron ore consumer, does not have its own iron ore index. That was a disadvantage for China during negotiations, because imports accounted for 62.3 percent of China's total iron ore consumption last year, Zhang said.
Besides actively exploiting iron ore mines at home and abroad, China is also making iron and steel from steel scrap.
As a major substitute for iron ore, steel scrap contributed 17 percent of total steel production in 2005, according to data provided by the China Steel Association.
Some downstream industries have even started reducing steel use due to the iron ore price hikes.
"All our products till April next year have been ordered, which is quiet different to the days when we needed to do a lot of marketing," said Cui Zekai, a salesman from No.Seven Wuyue Plastic Plant in Suzhou, in east China's Jiangsu Province. The plant produces auto parts made of plastic.
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