Iron ore prices may push China mills into crisis

Chinese steel mills are facing massive difficulties during this year's annual iron ore benchmark talks with big price hikes set to push many of them into the red, the head of China's third biggest steel firm, Wuhan Iron & Steel Group, said yesterday.

Deng Qilin, who also chairs the China Iron & Steel Association (CISA), said the steel mills – 61 percent dependent on foreign supplies in 2009 – had little choice but to accept the price increases being forced upon them by Rio Tinto and BHP Billiton of Australia and Brazil's Vale.

"This is a sellers' market so the miners will decide the price increase in the end, but China needs to tell them they cannot raise prices indiscriminately," he told reporters at a briefing held on the sidelines of China's annual parliament session.

CISA said at the end of last year that the miners were likely to ask for a price increase of 20 per cent in 2010, but even the most conservative analysts are now expecting a hike of at least 40 to 50 per cent.

Deng complained that the big miners had responded to the steady recovery in the global steel market with unfair price demands.

"If we can accept the costs we can come up with an agreement, but if we are making losses, how can we agree? If we are earning nothing, how can we accept it?

"While our iron ore mines are 100 metres deep, they only have to dig a metre underground and extract the ore and they can then sell it at $100," he said.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.