China seeks more influence in setting iron ore prices

China's iron ore imports amounted to 820 million metric tons in 2013, up 10.2 percent from a year earlier, data from the General Administration of Customs shows. China produced 1.4 billion metric tons of iron ore in the same year.

Steel sector still facing profitability problems

The world's three biggest miners BHP Billiton, Rio Tinto Plc and Vale SA are China's main sources for imported iron ore. The companies have margins that have exceeded 50 percent over the past decade because they have sufficient capital support, advanced mining technology and a large number of rich mines in different continents, according to a report by China Chamber of International Commerce released last year.

These advantages have enabled foreign companies with low iron ore production costs to mine the resource for around $50 a metric ton. However, Chinese miners are having difficulty in coping with price volatility and their production costs are between $100 and $110 a metric ton.

"The disparity is clear. The production cost of Chinese companies is likely to rise because labor, equipment and cash flow are in short supply," said Ding Rijia, a professor at the China University of Mining and Technology in Beijing. "It even costs more to dig new mines with rich iron ore deposits in China today."

Ding said Australian and Brazilian iron ore producers are likely to set their prices between $120 and $125 a metric ton this year, which will savage Chinese iron ore enterprises. As a result, China will purchase more iron ore from major international sellers and produce less iron ore in its own marketplace.

"With profound changes in the world market, it is time for China to strengthen its competitive power to secure its iron ore supplies and stabilize its price in the world market," said Zhao Zhihua, an analyst at the mineral resource department of CITIC Metal Co in Beijing.

Zhao said China's new round of investment in urbanization projects such as subway lines in more second-tier cities, bridges and new railway lines in its western region will continue to keep the demand for iron ore high this year.