Shanghai Baosteel Group Corp, China's largest steel maker, is to begin a new round of price negotiations with three major suppliers this month, according to the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters.

Baosteel will be the only representative of Chinese steel producers in the talks with major miners Australia's BHP Billiton Ltd, Rio Tinto Group, and Brazil's Companhia Vale do Rio Doce to set iron ore prices for 2006, said Liang Ruodong, director with the minmetals department of the chamber.

He said the prices Baosteel helps draft would be accepted by all Chinese steel manufacturers and iron ore traders.

However, he declined to disclose the detailed timing and venue for the talks.

Long-term iron ore prices between major suppliers and buyers are scheduled to be settled before April. Besides Baosteel, the buyers also include Japan's Nippon Steel and Acelor Steel in Belgium.

Last year, Chinese companies accepted a 71.5 per cent rise in iron ore prices, which was negotiated by the Japanese company. More than half of China's annual iron ore imports come from Australia and Brazil.

In order to gain a say in this year's negotiations for China, which is the country with the largest iron ore demand, domestic industrial associations took measures to reduce the number of Chinese importers by increasing the access to import licences.

Liang insisted that prices this year would remain at the current level or even see small declines.

"Global iron ore supplies, domestic or overseas, are growing while the growth rate of China's demand slows down," he said.

The China Iron & Steel Industry Association predicted earlier this year the country's crude steel production growth would slow to 10 to 15 per cent this year. The figure was 24.56 per cent in 2005.

Meanwhile, Liang said, long-term prices were also influenced by the prices in the spot market.

Since Liang's chamber of commerce set up a strategic co-operation relationship late last year with Indian miners, who are Chinese companies' main spot market partners in iron ore, the spot prices for iron ore declined.

Meanwhile, domestic mills can hardly endure a sharp price rise this year as steel prices fall all around the world and price increases last year squeezed their profit margins.

"As steel prices are likely to fall further this year due to oversupply, steel makers may carefully think about their production volume as producing steel may not be as profitable as in previous years," said Sun Zhaohui, an analyst at Xingye Securities Co in Shanghai.

Analysts were quoted by Dow Jones as saying that Chinese steel makers are unlikely to accept a rise of more than 10 per cent in the contract for 2006.

Some future market analysts earlier predicted iron ore prices might increase by about 20 per cent more this year.

Source: China Daily