On behalf of China's steel plants, the Shanghai-based Baosteel Group has started the fourth round of negotiations with the world iron ore providers on the contract price of the raw material in the new financial year.

 

According to the company source, the negotiation is at the stage of market analysis and demonstration in China and has not touched upon any details of the price.

 

This round of negotiations is expected to last about two weeks. Baosteel is scheduled to firstly negotiate with Australian Hamersley Iron Corporation of the Rio Tinto Group and then with another two iron ore giants BHP Billiton PLC from Australia and Compan-bia Vale do Rio Doce from Brazil next week.

 

However, insiders are not very optimistic that the final price will be agreed on during this round of talks.

 

Some observers predict that both sides will not be pressured by the deadline of April 1 and the negotiation will still be a protracted warfare, at least in the foreseeable future.

 

There has been much media speculation that the negotiations will come to an end around late March but negotiators from Baosteel said it is next to impossible to finish them before April 1 due to "the irreconcilable conflicts between the two sides".

 

China's iron corporations have already performed ample investigations and demonstrations into the demand and supply of iron ore, the affordability of the domestic iron plants and the order of the iron ore market. They concluded that any further rise in the international iron ore price will fundamentally undermine the currently harmonious development pattern in both the ore and steel industries.

 

Yet the iron ore giants hold that the increase of demand is still currently larger than the increase of supply and they have reasons to raise the price.

 

Some analysts say that China's tough stance in the negotiations is not just about bargaining over the iron ore price; it is taking the long-term development of the industry into consideration.

 

Currently, China's steel and iron industry is adjusting its industrial structures and entering a stable period of development, which means the country's demand for iron ore will also be stable.

 

According to the latest report released by the National Development and Reform Commission, the sharp increase of China's iron ore exploitation, together with the lowering expansion speed of China's steel and iron industry, the conflict of supply and demand between China and the world will ease in 2006.

 

A source with the China steel industry association said China's iron ore production will reach 540 million tons this year, 120 million tons more than that in 2005.

 

It said China's crude steel output is expected to reach 384 million tons this year which will need 558 million tons of iron ore, increasing by 45.9 million tons, significantly less than the past two years.

 

The Chinese government is rigorously cracking down on illegal operations and deeds in the domestic ore market and will incorporate the majority of the imported ore into the country's long-term purchasing list, in order to create a mutually beneficial situation for the ore industry and steel industry.

 

(Xinhua News Agency March 29, 2006)