A report from the Shanghai Securities News claims that China's largest steel firms will sign an accord on Thursday pledging not to profiteer on iron ore sales to the country's smaller businesses.
Only the larger steel mills and trading companies are permitted to import iron ore under China's quota system, which was designed to prevent competing Chinese mills from driving up spot prices.
Smaller mills regularly complain that they have to buy imported iron ore at high spot prices from large state-owned trading companies, who had sourced it at much lower term prices.
Under the new agreememt mills which import more than they use may only sell the remainder at the term price plus a service fee of 3 to 5 percent, the paper quoted Wu Xichun, a senior consultant for the China Iron and Steel Association, as saying.
Source: Reuters
"At the first violation, the mill would receive a warning. At the second violation, the company's import licence would be withdrawn," the paper said.
China's steel mills were expected to sign the agreement today at an industry conference.
On Wednesday, China said it would stop its steel mills from expanding further as industry figures showed the sector carries massive overcapacity which risks swamping domestic and foreign markets.
Baosteel Group, one of the country's top steel makers, plans the same level of output for 2009 as in 2008.
It expects to produce 28 million tonnes of crude steel, 24 million tonnes of crude iron and 27 million tonnes of steel products, the paper quoted Ma Guoqiang, deputy general manager of the group, as saying.
Hebei Iron and Steel Group in northern China planned to raise its output by nearly 9 million tonnes, or 28 percent, to 41 million tonnes this year, the paper said.
Update 16 January 2009: Iron Ore resale accord rejected
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