(China Daily)
Updated: 2007-12-04 10:33

Formal negotiations to set the contract price for iron ore for the next fiscal year "may start soon", said the industry association.

Luo Bingsheng, vice-chairman of the China Iron & Steel Association (CISA), made the remarks at a seminar held over the weekend in Shanghai.

The price of iron ore is expected to rise significantly due to soaring marine transport costs. UBS Securities estimates the iron ore price growth rate to exceed 35 percent next year.

United Securities analysts said that although next year's projected 70-million-ton increase in the supply of iron ore on the global market will meet increased demand, which will stay within 48.6 million tons, iron ore producers should adjust supply.

China has raised export tariffs for iron and steel products five times this year, concerned about meeting domestic demand. The nation's iron and steel exports dropped 13.7 percent in the fourth quarter so far.

The average CIF (cost, insurance, freight) to China from January to September hit $79.72 - 27.06 percent higher than the corresponding period of last year, the CISA said. The spot contract freight cost from Brazil to China has exceeded $90 per ton since November.

"The recent rise in marine transport costs is unusual and unreasonable," said Luo. "It has gone beyond an acceptable level."

Speculation on the soaring price of iron ore intensified as Melbourne-based BHP Billiton Ltd, the world's second-largest mining resource giant, raised a $128 billion bid earlier last month to take over London-based Rio Tinto. The combined company, if the deal goes through, would draw level with rival Brazil Cia Vale do Rio Doce, and would take up nearly 40 percent of the global iron ore export market.

"It may further drive up the price, as the two companies will have greater bargaining power after the merger," said Chen Xianwen, CISA's deputy director of market research.

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Increasing demand from China and other fast-developing countries including Brazil, Russia and India, means the price of iron ore "is very likely to remain at a high level", said Zheng Yuchun, deputy general engineer at the Metallurgical Economic Research & Development Center.

China is the biggest buyer of iron ore on the global market, with its import set to reach 370 million tons by the end of this year. Its consumption of iron and steel is expected to increase by 11.5 percent in 2008, said Chen Xianwen, market research director of the CISA.

Baoshan Iron & Steel Co, the largest steelmaker in China, said last month it would raise steel product prices next year, driven by the rising cost of raw materials. The price of hot-rolled products will be increased by up to 8 percent.

Analysts said the move shows the company's confidence in the steel market. Jia Liangqun, deputy general manager of Shanghai Ganglian Electronic Business Co Ltd, said other companies might follow suit, but he's optimistic about the impact of the iron ore price rise.

"I think Chinese steelmakers have been preparing for it, and I don't think demand will fall to any significant degree."