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Chinese iron ore re-selling

Chinese iron ore re-selling
The China Iron and Steel Association called a meeting to try to get China's fragmented steel industry to unite behind one price for imported iron ore.

The China Iron and Steel Association called a meeting to try to get China's fragmented steel industry to unite behind one price for imported iron ore.

Chinese steel mills and trading houses have rejected an attempt to get them to agree to stop re-selling iron ore, a deal which might have improved China's hand in the annual price negotiations with leading miners. The China Iron and Steel Association (CISA) called Thursday's meeting in Tangshan, close to Beijing, to try to get China's fragmented steel industry to unite behind one price for imported iron ore, rather than profiteering by re-selling imports, especially unwanted stocks imported under long-term contracts.

The steel mills and trading houses opposed the draft ban on re-selling, claiming it was impractical due to the fragmented nature of the Chinese steel industry and the weak monitoring system for tracking each trade.

"I think the ban is too utopian. Actually some big steel mills made great profits over the past few years from reselling the iron ore they imported, but no one could stop them," a manager at a Shanghai-based steel trading house who attended the meeting told.

"And the ban is unrealistic for our trading houses, which can only profit from reselling and chasing the biggest profit possible," he said.

The failed attempt to bring the trading into line may make it harder for China's top steel firm Baosteel Group to hammer down the benchmark term iron ore price set annually in talks with top miners Vale, Rio Tinto and BHP Billiton.

Analysts expect China will be seeking to cut the price by about 40 percent this year after several years of massive price rises, largely the result of rampant demand from its steel industry.

This year, Chinese steel companies are considering unifying the price for iron ore imports and changing the start of the 2009 term contract year from April to January, officials at the China Iron and Steel Association have said.

China has been pushing its steel sector to consolidate, giving big government contracts to the main state-owned players while trying to do nothing to stop independent steel mills from going bust.

The government also wants to rein in rampant growth in capacity, which risks leaving the world's biggest steel sector with a massive surplus just as global demand for steel evaporates.

The draft agreement would have limited firms to charging a service charge of 3 to 5 percent on iron ore resales, rather than bargaining to sell imported ore at the highest possible price on the physical market, the official Shanghai Securities News said.

www.TurkishMaritime.com.tr

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