MercoPress. South Atlantic News Agency

Chinese steel industry insists with 40% cut in iron ore prices

China's steel group insisted this week with a cut of at least 40% in annual term iron ore prices after a news report said Rio Tinto Ltd is offering a smaller discount before new annual contract negotiation ends, according to reports in the Chinese press. “Our request hasn't changed,” said Shan Shanghua, secretary general of the China Iron and Steel Association.

Citing unidentified executives, Bloomberg News said on Tuesday that Rio Tinto, the world's second-largest iron ore producer, offered an interim 20% price cut to major Asian steel customers. Some Chinese mills have rejected the discount as too small, the report said.

The annual price negotiations have stalled as Chinese mills want a reduction of at least 40% to bring prices to below 2007 levels. Chinese steel mills have posted a combined loss of 770 million Yuan (approximately 120 million US dollars) during the first two months of 2009 as steel prices tumbled.

The fiscal year for iron ore contracts started April 1. Typically, steel mills pay for ore at last year's levels until new prices are agreed.

Shan said the association has required mills pay only 60% of 2008 term prices as prepayments before new rates are settled. Mills that pay more than 60% could face punishment, he said, without elaborating.

News of the 20% discount may signal what the world's top three ore producers, which also include Anglo-Australian miner BHP Billiton Ltd and Brazil's Vale Doce, are asking for in the new contract talks. Rio Tinto has declined to comment on the Bloomberg News report.

The three mining corporations account for about three quarters of the global sea-borne trade in iron ore. A price cut this year would end six straight years of increases for iron ore term prices, which rose fivefold during the period.

Meantime the Chinese Transportation Ministry revealed on Wednesday that iron ore imports surged to a new record in March.

China, the world largest steel manufacturer, imported a record 51 million tons of iron ore in March, preliminary data from the ministry showed, taking total purchases in the first quarter to 130.5 million tons, up 18% from a year earlier.