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 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 proposal had suggested that companies mark up unwanted stocks by 3 - 5% as the government was opposed to Chinese companies effectively bidding against each other for iron ore thus driving up the price.
The industry has 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. In reality the accord would have had the effect of limiting the profits made by the mills and traders who have made large profits from reselling iron ore stocks.
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.
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.
Source: Reuters
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