Wuhan Iron & Steel Group said Chinese steel mills are facing a very difficult challenge in annual iron ore pricing talks since accepting benchmark price rises will cause big losses thus this year's iron ore benchmark talks will not end in agreement any time soon.

Mr Deng Qilin president of Wuhan and chairman of China Iron & Steel Association said the iron ore miners are demanding a big price rise, but he did not specify the size.

Mr Deng said “Although the prices of steel products have picked up this year, they still cannot digest the pressure from rising iron ore prices.”

He said that "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?"

He told “Chinese steel mills are suffering from slender profits while iron ore miners only have to dig about a meter underground. What costs them USD 10 they sell for USD100. Is it fair?"

He said Chinese steel mills will either slash output and suffer losses or raise their prices to transfer their high material costs, but that could seriously affect downstream industries such as the auto and home appliance industries and damage the country's economic recovery.

Mr Deng urged the government to regulate the iron ore market and centralize iron ore imports. CISA has long wanted to reduce the number of licensed importers and use a system that erases the differences between long term and spot prices.

He also said Chinese steel mills need to accelerate the pace of consolidation and overseas resources acquisitions to reverse the passive position in iron ore talks.

Official data shows that the average profit ratio of 72 large Chinese steel mills declined to 2.2% in 2009 down by 53.4% from the previous year.

Sourced from China Daily

• [Editor:editor]