China's crude steel output rose 13.5 percent in 2009, official data shows, which analysts say could weaken the position of the nation's steel mills in this year's iron ore contract price negotiations.
Production reached 567.8 million tonnes last year, according to figures released by the National Bureau of Statistics on Thursday, partly due to massive public spending on infrastructure projects.
Analysts said the figure was a record and may increase pressure on Beijing to accept higher prices for iron ore -- the key ingredient used to make steel -- during talks with the world's major miners.
"In a situation where the industry is expected to increase output and its demand for iron ore, this impacts the iron ore price talks," Fitch Ratings analyst Lim Su Aik told AFP.
Lim said steel output could reach 600 million tonnes this year.
"The fiscal stimulus policy is still in place and the infrastructure projects are very much driven by government spending and that is one key driver for steel demand," Lim said.
China's iron ore imports surged 41.6 percent to 627.8 million tonnes in 2009, with the value falling 17.4 percent as prices were hit by the global downturn, customs data shows.
Lim said he expected iron ore prices to rise 15 to 20 percent in 2010 from the previous year due to stronger demand in China and the rest of the world.
China's relations with the world's biggest miners -- BHP Billiton, Rio Tinto and Vale -- remain tainted by the arrest in July of four Rio employees in Shanghai for alleged industrial espionage.
The four -- Australian passport-holder Stern Hu and three Chinese workers -- are still in detention pending trial.
Australian media reported this week that substantive talks between the miners and China were yet to take place.
Another analyst said there was "no chance in the short term" for China to take the upper hand in annual price negotiations given its huge appetite for iron ore.
"It is the huge demand (from China) that drives up prices," said the analyst who declined to be named due to the sensitivity of the talks.
"There are three major sellers but the Chinese market is too fractured so it is impossible for the buyers to have too much bargaining power."
Source: AFP
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