China tightens curbs on steel sector

Chinese officials have complained for years that steel companies paid too much for foreign iron ore, failing to translate China’s position as world’s biggest steel producer into clout at the bargaining table. A state-sanctioned industry group was brought in to fix that by taking over price talks. But the China Iron & Steel Association was tripped up, Chinese state media say, because its bottom line was leaked to Rio.

Huge losses

“The arrest of Rio Tinto employees earlier this month appears to be the latest salvo in an ongoing battle between CISA and major Chinese steel mills,” Chinese newspaper Economic Observer said.

Beijing’s urgency has been heightened by huge losses at some mills that were paying higher prices for iron ore even after steel prices plummeted due to the global financial crisis.

China’s buying contracts expired June 30 and talks on a new deal appear to be snagged on its insistence on a price cut bigger than the 33 per cent reduction agreed to by Japanese and Korean mills.

A government plan issued in January says that by 2011 the top five producers should account for 45 per cent of China’s output, up from 28.5 per cent today. China’s top 27 producers lost a total of 9.6 billion yuan ($1.4 billion) in the first half of 2009, compared with a 36.3 billion yuan profit a year earlier, according to China Daily.

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