Shanghai-based Baosteel Group reached an agreement with Brazilian Companhia Vale do Rio Doce (CVRD) on Thursday evening on the contract price of iron ore in 2007.

The price will rise 9.5 percent to 72.11 U.S. cents per metric ton unit for the next financial year, said the source with Baosteel.

Baosteel is the world's first steel company to settle an iron ore contract with the CVRD for the financial year beginning on April 1, 2007.

It is also the first time, during the past four years, that China's steel companies have directly reached an agreement with the world leading iron ore provider rather than following the benchmark price settled by their foreign counterparts and the providers.

Baosteel failed to reach agreement, on behalf of all China's steel mills, on the iron ore price with the the world's three main iron ore providers -- BHP Billiton, Rio Tinto and CVRD -- for successively three years.

This posed China's steel companies in a very disadvantageous situation, because they had to pay no matter how unacceptable the price was, said insiders.

The three iron ore giants raised prices for Chinese steel mills by over 70 percent in the 2005 financial year.

The steel companies were then wrong-footed by CVRD this year and forced to accept a 19 percent rise.

Market analysts said the 9.5 percent growth rate basically reflects the supply and demand situation in today's world iron ore market.

Though China still has a growing need of the iron ore, the growth rate is obviously slowed down.

On the other hand, China sees a declining domestic steel consumption this year and the country's fixed assets investment in the iron and steel industry is reducing.

Analysts said the shrinking growth rate of the iron ore price also reflects a balance of interests between China's steel makers and the international iron ore providers.

China is the world largest iron ore consumer and it certainly needs the supports from the international iron ore providers, said a senior manager with Baosteel.

But, the manger said, the world leading iron ore providers will also grow dependent on China's steel industry in the future. As a result, a long-term stable strategic cooperative relationship should be formed between the two parties.

Baosteel has more than 30,000 employees and its output exceeded 20 million tons last year.

Source: Xinhua